CHONG We manage funds that track Asian indices such as the JACI Index [J.P. Morgan Asia Credit Index]. Australian credits are off-benchmark, tactical exposures for us. But there are reasons to like Australian credits, especially investment-grade corporate.

We believe Australian investment-grade corporate credits offer good relative value over their Asian counterparts. Their credit qualities are well supported by their strong competitive positions, and they have better corporate governance and disclosures.

Our interest in Australian credits is likely to remain in the near term given their attractive relative value, coupled with the expectation that the Asian US dollar bond market is unlikely to grow in the near term. Consequently, we are compelled to look for alternative investment opportunities from markets such as Australia or Japan.

We are open to looking at US dollar or Australian dollar-denominated issues by Australian corporates, but the latter may be hedged back to our funds’ base currency – which may be either US dollars or Singapore dollars.

CHONG We have not changed the benchmark of our JACI-based funds to the JACI APAC index given the administrative hurdles involved in making such a change. But the lack of adoption of the new index has not hindered Asian demand for Australian credits.

As I mentioned, the attractive relative value of Australian credits, sound credit qualities – especially in the investment-grade space – and shrinkage in the Asian US dollar bond universe have prompted Asian investors to look for investment opportunities in other markets including Australia and also Japan.

CHONG It is hard to say. Given the benchmark situation, our allocation to Australia is fundamentally a tactical one. But in the near term – say the next year or two – a more uncertain US interest-rate outlook coupled with flush liquidity in many Asian onshore markets mean supply in the Asian US dollar bond market may not grow substantially in the near term. Against this backdrop, our funds’ allocation to Australian credits may be more persistent than before.

Furthermore, growing familiarity with Australian credits means we, like other Asian investors, will feel comfortable about allocating – on a sustained Basis – a part of our portfolio into Australian credits.

CHONG Historically, allocation for Australian primary deals had favoured US investors since they have had longer involvement in this space. However, allocation of primary deals to Asian investors has increased given rising interest.

For their parts, issuers have broadened their investor base rather than relying on US investors. We now see a lot more Australian corporates doing roadshows with investors in Asia, whereas Asia was not a priority for them in the past.

Secondary market trading liquidity of Australian credits has improved in recent times as more banks are trading Australian credits in the Asian time zone, in response to higher participation by Asian investors.