Upside in Asian bonds if US lifts rates

INVESTORS in fixed income assets see potential rate hikes in the United States as a big bugbear. But Rajeev De Mello, Schroders head of Asian fixed income, see pockets of opportunity, particularly in the rate differentials that local currency Asian bonds offer over US Treasuries.

This reflects the fact that Asian economies are at differing points in their monetary policy cycle, relative to the US. When rate cuts were widespread in Western economies following the 2008 crisis, many in Asia actually raised rates.

"Now we are at a point where rate cuts are being instigated in parts of Asia, and this is where we believe value can be found. China was tightening until February this year, but the government has now started cutting rates. This loosening is positive for bonds, and we see similar opportunities in India and Indonesia."