KKR: The Asia-Pacific investment-grade credit market harbors a hidden opportunity of 1.8 trillion dollars and will become a new anchor for hedging US Treasury bond volatility.

KKR said that investors have overlooked the investment-grade credit market in the Asia-Pacific region, missing out on opportunities for returns. Tal Reback, KKR's global credit and market investment strategist, and Dengzhao Pan, head of Asian Credit Investments, said that the market presents a $1.8 trillion opportunity that is "too big to ignore," and has evolved into a diverse and risk-averse asset class. They wrote that investors often perceive the Asian credit market as "volatile and prone to default," adding that this is one of the industry's most "persistent misconceptions." Pan, in an interview, said, "Investors have misconceptions about Asia and need to delve deeper into the data to overcome any inherent biases they may have." According to KKR's data, there have been no defaults in the investment-grade credit market in the Asia-Pacific region since the global financial crisis. From 1993 to 2023, there have been 133 corporate defaults in Asia, compared to over 3,000 globally from 1981 to 2023. The average maturity of high-grade bonds in the Asia-Pacific region is also shorter than in the US, making them less affected by interest rate fluctuations in portfolios. Reback, in an interview, said that the market provides US investors with a good supplementary trading opportunity, especially as market volatility begins to show. Since February 19, the spread on US investment-grade bonds has widened by over 10 basis points but fell back to 85 basis points on Wednesday. "With recent market volatility in the US, investors seeking diversified returns can find relative value opportunities in the Asia-Pacific region," Reback said. Opportunities in Artificial Intelligence KKR also recommended the region due to its close ties to the field of artificial intelligence, allowing investors to access these assets without sacrificing their investment-grade exposure. In particular, China's technology, media, and telecommunications sectors are strong and "globally integrated." KKR said that companies like Alibaba and Tencent are likely to continue to perform well and have ample cash reserves to support their credit standing. The alternative asset management firm also sees opportunities in Australian banks and Japanese financial institutions. KKR believes that investors should still remain selective when considering the Asia-Pacific region, taking into account each country's "unique macro, political, and fiscal environment." But for Pan, the Asia-Pacific region offers opportunities to access alternative returns. "If you're a global asset management firm, you not only need to consider relative value in the US but globally as well."