Asian investors eye Aussie boost

FinanceAsia and National Australia Bank’s latest poll of Asian bond investors shows strong demand to boost exposure to Australia — and a clear idea of which sectors will reap the benefits.

By

Australia’s domestic bond market stands out from its rivals in Asia Pacific, enjoying strong credit quality, stable rates and a plethora of structural innovations other markets can only dream about. This makes the Australian dollar market a natural place for Asian investors to look — and a recent poll conducted by FinanceAsia and National Australia Bank (NAB) shows they are doing just that.

After a slight decrease in allocations to the market over the last 12 months, Asian investors are now eyeing a splurge. Out of the 71 investors who responded to the poll, around 81.7% plan to have exposure to the market over the next 12 months, compared to 54.9% that hold Australian dollar bonds now.

There has been a natural progression,” said Jessica Tilton, head of markets, Asia, at NAB. “Over the years, investors have become much more comfortable taking on Australian credits. At the same, the number of players has continued to grow. There has been a major boost in the understanding of credits and increased willingness to add exposure to the market. In addition, the repo market, supported by NAB, has provided stable Australian dollar funding for bond purchases.”

Building an Infrastructure Bond Market

The biggest draw for Asian investors eyeing Australia’s debt market is the infrastructure bond market. Some 54.9% of Asian investors polled said they wanted to see more infrastructure issuance in the Australian dollar market — compared to just 23.1% in 2016.

Australia’s infrastructure bond market fits perfectly into the portfolios of long-term investors such as pension and insurance funds, offering them an alluring combination of long tenors and strong credits.

“It’s fair to say that Australian infrastructure does provide fairly consistent supply to financial markets,” said Jacqueline Fox, general manager, investment grade origination, at NAB. “This is predominantly refinancing old deals, but the market is also open for capital expenditure financing as and when it is needed. Long-term infrastructure assets are suited for long-term capital markets funding, and we definitely expect that trend to continue.”

Utility and Education Sectors

Australia’s biggest utility companies have long been viewed by foreign investors as safe-havens. They boast at least some government support, have easy access to financing options, and tend to have stable, reliable revenue streams. But their bond supply is not enough to satiate investors.

There are other sectors where NAB expects a boost in demand. Australia’s educational institutions — in particular, universities — have become more prominent issuers in recent years.

To read the full report, please download: Asian investors eye Aussie boost – FinanceAsia and NAB Asian Investor Poll 2017 (PDF, 1.1 MB)