JP Morgan has observed that investors are turning their heads towards local currency markets such as Singapore and Hong Kong as these markets have displayed strong performance and are easy to access.
Asia is now a net capital exporter, with investors increasingly hedging US dollar positions as hedging costs rise and domestic currency yields pick up.
The continent itself drives 50% of world GDP growth, and its overall debt market is about $1.5 trillion.
De-dollarisation is a visible but slow trend. Amongst investors that JPM surveyed, 57% of them plan to reduce US dollar exposure, albeit gradually, and reallocate some of their dollar investment into non-dollar and local currency investments.
“Right now we haven’t really seen data to show that the size of reallocation (away from US dollar assets) is significant,” says Serene Chen, APAC head of credit, currency and emerging market sales, JP Morgan. “We do see marginal reallocation into emerging markets and non-US instruments, but it has not been at the rate where I think it's more soundbite than reality from what we have seen so far.”
The trend is going to continue in the near future until the US restores some confidence, adds Chen.
See also: Private credit: an additional, flexible source of debt, providing yield uplifts for investors
Middle East an emerging market
Asian investors are showing increasing interest in the Middle East, especially in local currency bonds given their US pegs.
Bilateral capital and trade relationships between Asia and the Middle East are predicted to deepen amid geopolitical shifts.
