Good outlook for corporate bonds
(9 January 2012 – Australia) HSBC believes there could be a potentially strong set of investment opportunities for 2012 for those with a longer-term perspective.
According to HSBC’s Outlook for 2012 – Looking past the abyss short-termism has driven markets at the expense of long term investment thinking during a markedly volatile 2011, but it could look up in the next six to 12 months.
According to the report, frequent rotations in sentiment in markets to date reflect the fact that officials have been applying a "band-aid" approach to addressing fundamental problems – acting only when faced with severe market pressure, and only then delivering just enough to stem the tide in the short run. With this context, at the forefront of investors’ minds is concern around European policymakers being able to deliver a comprehensive long term solution to deal with the Eurozone crisis.
The report showed that many people opted for safe havens in 2011, which forced the government bond yields to the lowest levels for a generation.
"(This) puts some in a position where returns are negative when inflation is taken into account," the report said.
"Combined with the negative fundamentals such as high debt levels, government bonds of developed markets do not represent good value on a medium term basis."
The opposite appears true of corporate bonds, which have been sold off during the downturn. Many companies including those in Australia are in solid financial shape by applying their own austerity measures.
With this in mind, the report shows a positive outlook for corporate bonds especially at the high-yield end of the spectrum and in Asia where fundamentals are relatively strong.
Mike Danby, Head of Savings and Investments for HSBC Bank Australia said: "We see corporate bonds, in Australia and overseas, as providing good value given the strength of companies’ balance sheets and comparatively lower debt."
According to the report, frequent rotations in sentiment in markets to date reflect the fact that officials have been applying a "band-aid" approach to addressing fundamental problems – acting only when faced with severe market pressure, and only then delivering just enough to stem the tide in the short run. With this context, at the forefront of investors’ minds is concern around European policymakers being able to deliver a comprehensive long term solution to deal with the Eurozone crisis.
The report showed that many people opted for safe havens in 2011, which forced the government bond yields to the lowest levels for a generation.
"(This) puts some in a position where returns are negative when inflation is taken into account," the report said.
"Combined with the negative fundamentals such as high debt levels, government bonds of developed markets do not represent good value on a medium term basis."
The opposite appears true of corporate bonds, which have been sold off during the downturn. Many companies including those in Australia are in solid financial shape by applying their own austerity measures.
With this in mind, the report shows a positive outlook for corporate bonds especially at the high-yield end of the spectrum and in Asia where fundamentals are relatively strong.
Mike Danby, Head of Savings and Investments for HSBC Bank Australia said: "We see corporate bonds, in Australia and overseas, as providing good value given the strength of companies’ balance sheets and comparatively lower debt."
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