We discuss with Neeraj Seth, lead portfolio manager for the BGF Asian Tiger Bond Fund, on Asian Bond space.
Germaine Share: Hi I’m Germaine for Morningstar’s manager research team. And I have with me Neeraj Seth today, who is the Head of Asian Credit at BlackRock. He manages a very successful Asian credit strategy there since 2012. And he is a manager that we’ve followed for a number of years, and one of our favorite managers in the Asian Bond space.
Hi Neeraj. Thank you for joining us today.
Neeraj Seth: Hi. Thanks for having me.
Share: So, the strategy you are running at BlackRock, it’s been very successful and delivering strong short-term and long-term results. What do you think are some of the keys to success?
Seth: The investment performance comes through a combination of three factors. It’s the people, the process, and the platform. So in this case, when you look at the team, it’s a very very experienced team, with experience through the different credit cycle, which is absolutely critical as we going to the late stages of the credit cycle. The team follows a very disciplined investment process, which is designed to perform through the different parts of the cycle. And finally, the BlackRock platforms, and the Asian credit platform we have in BlackRock, provide significant advantage to support the investment performance for our clients.
Share: Great. So, looking at the asset class, you have the 10-year Treasury yield pushing 3% on the back of increasing inflationary pressure in the US, what is your take on the potential rate hikes this year and what implication does it have for the asset class?
Seth: Overall we still remain constructive for the asset class. I do believe given the strong growth and some up taking inflation in US, you would potentially get three to four rate hikes. And if anything, the market is slowly transitioning towards the possibility of four. But given the rate hikes are coming alongside strong growth, strong macro backdrop, to some extent not very high inflationary pressures, I think it remains a positive backdrop for the asset class in Asia. And I do believe the basic long-term structural forces around the need for fixed income, the demographics will keep the demand for the asset class very much in place.
Share: So just given that outlook, where are you finding opportunities?
Seth: So we still like the investment grade credit in Asia, more specifically, there are parts of China we like, and Indonesia - we are still positive on. We’ve been somewhat selective on high-yield but from a bottom-up perspective we see enough opportunities there. And we see investment opportunities in some the local markets like Indonesia or China.
Share: Great. So, just to sum up our discussion, if you look at the bond market 10 years ago compared to where we are now, it looks very different. So, do you have any forward looking comments in terms of what kind of structural developments you are expecting in the market?
Seth: I think the most important point one needs to understand is, if you are a fixed income investor, not just in this part of the world, but any part of the world, you will not be able to ignore Asia going forward. The change of the market structure is happening as we talk, we’ve seen a significant amount of growth in the domestic markets in Asia. And if we take a step back and think about more from a forward-looking standpoint, there are two key drivers of growth in this market.
The first is high nominal growth rate, leading to high growth rate of the capital base and the demand of capital. The second is the disintermediation of the banking system. So we see the market share of the banks as the credit or debt providers in this economy continue to go low. So if you take that together, we do believe that Asian markets are going to continue to grow from here.
And more importantly, as you see these markets opening up, as China nowadays, India in the future, the integration of the Asian domestic capital market and the global capital market will change the market landscape so the Asian, emerging markets, and the global fixed income markets in 10 years from now will look very different. And then, investors will have to focus on Asia as a part of their portfolios.
Share: Great. That’s great insights. Thank you so much, Neeraj.
Seth: Thank you.
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