Opportunities in Growing Asian Bond Market Available in Fixed-Income ETFs

The performance of emerging markets exchanged-traded funds (ETFs) have been marred by the trade wars between the U.S and China, such as the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO)–down 7.67% YTD, iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG)–down 7.3% YTD and iShares MSCI Emerging Markets ETF (NYSEArca: EEM)–down 7.78% YTD. Nonetheless, there can be emerging markets opportunities had in fixed income, especially when it comes to Asia.

“There are huge opportunities for fixed income in all global regions at the moment, particularly in Asia,” said Michael Paulus, Managing Director at OpenDoor Securities. “Infrastructure needs as well as rapidly increasing wealth in the region are helping to drive the issuance. While Asian markets are not nearly as developed as those in the U.S. and Europe, technology innovation there is being developed rapidly, and regulators and local governments are taking a more proactive look at how these technologies can be incorporated into bond markets.”

Related: MSCI Emerging Markets Index Down Almost 9% YTD

The Singapore Exchange infused a $53 million investment in U.S. trading-venue operator Trumid, which signals the confidence in the Asian bond markets. This could open the doors for similar investments to encourage more electronic trading in the fixed-income space.

“There is growing interest from Asian policy-makers and regulators to encourage electronic trading,” Paulus said. “Players in Asia-Pac are becoming increasingly focused within the region. As these Asian markets develop, there is greater flexibility to adopt new technologies and trading platforms as the incumbents are not as entrenched as they are in Europe and North America.”

Investors can get access to the Asian bond markets with broad-based exposure to emerging markets fixed-income ETFs, such as the VanEck Vectors JP Morgan EM LC Bond ETF (NYSEArca: EMLC), Invesco Emerging Markets Sovereign Debt ETF (NYSEArca: PCY) and the SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (NYSEArca: EBND). These ETFs will incorporate debt issues from certain Asian countries, depending on the fund, but also provide exposure to debt markets in other parts of the globe.

EMLC seeks to replicate the price and yield performance of the J.P. Morgan GBI-EM Global Core Index, which is comprised of bonds issued by emerging market governments and denominated in the local currency of the issuer. It may concentrate its investments in a particular industry or group of industries to the extent that the index concentrates in an industry or group of industries.