Australian and emerging market bonds are the best place to be during a global financial crisis (GFC), according to fixed-income manager Western Asset.
"If you are concerned about global uncertainty, such as the possibility of a US double-dip recession, then Asian and Australian bonds are the place to be," Western Asset Singapore head of fixed income Rajeev De Mello said.
De Mello said that during the worst of the GFC these bonds held up well.
"During the last quarter of 2008, for example, Asian bonds proved resilient to the global sell-off," he said.
Emerging market bonds will only become more attractive investments as the gap between economic growth in developed and emerging markets widens, because this would entice developed economies, such as the US, to keep their interest rates low or reduce them even further in an effort to stimulate growth.
"Obviously, the consequences of these very low yields, globally, are that people are looking for yield in Asia," De Mello said.
De Mello found support for his argument in the adjustments of global gross domestic product (GDP) forecasts by the International Monetary Fund (IMF) released on Wednesday.
"They actually downgraded advanced economy GDP for 2011 from 2.4 to 2.2 per cent, and in particular they downgraded the US from 2.9 to 2.3 per cent - quite a significant downgrade," he said.
"They downgraded the developed countries, but they've maintained their forecasts for emerging markets and developing economies at 6.4 per cent for 2011. China they have maintained at 9.6 per cent for next year.
"So the growth divergence between the emerging economies and the G3 is actually growing. In terms of the impact it has on our region, it is clearly that it attracts investors looking for growth, looking for growth in equity, bond, currency and corporate markets."
