Low inflation and policy rates in Asia are in exact contrast to the fiscal decadence across the US, Europe and even Japan, which has ultimately lowered the value of long-term debt.
Malaysia has caught the attention of bond investors, who are moving capital out of the US and has quickly become one of the leading destinations for foreign investment. Investors are looking eastward to pour their money into stable and lucrative Asian debt markets.
Foreign investors are purchasing government bonds across various Asian countries, including Indonesia and India, signalling headway into markets which have traditionally been the forte of domestic players. Market researchers are in agreement that the situation for an Asian market boom is right around the corner.
The Asian markets’ claim to fame is their monetary easing and currency appreciation, which are being offered for the first time in four years, prompted by US President Donald Trump‘s protectionist policies and a plummeting dollar. Malaysian bonds received around $3.15 billion in May, the highest foreign inflow since 2014. India and Indonesia also recorded significantly high volumes of foreign investment.
Low inflation and policy rates in Asia are in exact contrast to the fiscal decadence across the US, Europe and even Japan, which has ultimately lowered the value of long-term debt. Slow-paced growth and expected rate cuts further pushed investors to capitalise on higher interest rates in anticipation of capital appreciation on bonds as yields decline. Moreover, investor spirits are high as the dollar weakens, as they stand to profit from currency appreciation.
With Trump tariffs, the global economy was sent reeling, and markets came close to crashing. The 90-day pause has offered some much-needed reprieve, although the situation could be temporary. With Washington calling for a truce, tariffs and counter-tariffs have been revoked, and Trump allowing for bilateral negotiations between the US and other countries, the market is showing signs of recovery, albeit slowly.
However, the dollar is performing poorly against various other currencies, and oil prices remain volatile due to heightened geopolitical tensions. Economists are confident that emerging markets can prosper in light of dropping US rates and dollar value. The phenomenon was the opposite in recent years and is now being reversed with Asian markets on the uptrend.
So far this year, foreign investors bought Asian debt worth $34 billion in securities, the largest amount in the first five months of the year since 2016, as per data from regional regulatory authorities and bond market associations. Analysts are optimistic that this is just the beginning for Asian markets. As long as Asia continues to remain stable and insulated against the shocks of the international economy, and monetary policies are favourable, these economies will attract more investments.
Market researchers noted that such fixed-income interest is a common feature among emerging market countries like Thailand, Indonesia, India and the Philippines. Increasing rate cuts in India have made it one of the most active markets for clients. Investors understand that rates might be slashed in the future and are rushing to capitalise on the present high yields since bond prices increase as prices fall.
Malaysia has become a favourite of investors as the market remains divided over rate-cut prospects. Kuala Lumpur, therefore, has an edge over Thailand, where investors believe the rate-cut cycle has nearly come to an end. Bangkok reported outflows of about $53.6 million in May, as investors did not wish to gravitate towards a market which was so harshly hit by Trump tariffs and one which records one of the lowest returns across Asia.
One-year Thai bond yields are below the 1.75% policy rate. Thailand’s central bank has stated that continued rate cuts are not possible, but the government has expressed that it prefers a weaker currency. Investors view Malaysian bonds as offering more value, as the country’s central bank has not yet begun rate slashing, despite weaker growth and a strong ringgit.
