Institutional Conversations

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Hello, everyone.

0:07

Welcome to Episode 3 of our Institutional Conversations podcast.

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I'm Shuxing Deng, Senior Portfolio Specialist at Invesco.

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Today I'm joined by two of my colleagues, Norbert Ling, Head of Fixed Income Portfolio Management, Asia Pacific, and Fiona Yang, Fund Manager of Asia and Emerging Market Equities.

0:29

So I think it's fair to say that investors are navigating a complex market environment right now, with global markets responding to a range of macro and geopolitical developments.

0:40

In today's conversation, we will use the current backdrop as context but take a step back to explore how Asia assets across both equities and fixed income fit into globally diversified portfolios and what role they can play through a different market environment.

1:00

So, so with that in mind, Norbert, from a macro perspective, how do you see these developments impacting the Asian macro environment?

1:10

The question that we are asking ourselves as investors is what's the impact on growth and inflation outlook?

1:15

There has been a lot of focus on inflation, and the question is whether it's something short term or more permanent from an inflationary perspective.

1:23

And also what is the response of governments from a fiscal perspective,

1:26

For example, the level of fuel subsidies that may be used to help to cushion the impact of higher oil and energy prices?

1:33

As active investors, we do spend a lot of time dissecting supply chain implications and that remains very critical when you look across from upstream to downstream and in various different sectors.

1:43

From a macro perspective, energy security has always been very important for many Asian countries.

1:48

And we do also recognize that renewable energy is part of the tool kit to help to mitigate the energy security question for many economies.

1:56

And taking a very high-level bird’s-eye view, if you look from an Asia perspective, Asian central banks actually navigating the current developments from a very good position of strength.

2:05

If you look at inflation, it's actually below target in most geographies. And Asia ex Japan CPI is below 1% in 2026 (source: Bloomberg, as of 27 Mar 2026) versus being close to 4% in 2022 and 2020 versus the 15-year average of 2.5%. (source: Bloomberg, as of 31 December 2025)

2:19

So inflation at the current level is low versus the historical levels and many countries have different tools to help to navigate this macro environment.

2:26

So given the current uncertainty and elevated volatility, how should investors think about Asia assets today?

2:34

Like what role do Asian equity and Asia fixed income play in a diversified global portfolio in this environment?

2:41

So Fiona, why don't I turn to you first?

2:44

Thanks for the question, Shuxing

2:45

I don't think one of the key challenges investors face today is sentiment versus fundamentals.

2:52

If you look at Asia equities, they have been held back recently by quite negative investor positioning as well as energy security uncertainty.

3:01

Reality is that Asian corporate fundamentals in many areas are actually stabilizing or improving.

3:08

From a portfolio perspective, Asia equities still offer ample diversification benefits.

3:14

Valuations are meaningfully below long-term averages and at a substantial discount to develop market.

3:20

Importantly, this is not just a valuation story.

3:23

We're seeing selective earnings resilience, strong balance sheet and increasing shareholder friendly capital allocation.

3:30

First look at valuation.

3:32

Asia is still the best value on the street versus especially the US market.

3:37

Asia trades at a deep, almost historical discount.

3:40

Resonating with what Norbert said earlier, you're really getting work class growth in Asia but paying a much fairer price to it.

3:48

And for bottom-up stock pickers like myself, this is stock pickers paradise.

3:51

Asia is so diverse that a broad macro call will not work.

3:55

Bottom up do matter in this market.

3:57

There are a lot more nuances between say, Thai hospital chain versus Chinese beer brewery than Google versus Meta.

(Note : Securities mentioned are for illustrative purpose only. This must not be seen as investment advice. ).

4:05

The returns aren't coming from just AI by super cycle, but more sector and company specific drivers

4:12

and for investors heavily concentrated on US assets. I do think Asia provides real diversification, not just a different ticker.

4:20

Adding on to what Fiona said, I think from a global investor perspective, we do see very strong diversification benefits to allocate to Asia fixed income asset class.

4:28

If you look at the correlation to other global fixed income asset classes, Asia credit is running about 0.3 X correlation over the last two years to global AG and US treasury. (Source: Bloomberg, as of 27 March 2026)

4:38

And from a historical volatility perspective, we do see low volatility as well in Asia credit compared to other fixed income asset classes.

4:45

As a fixed income investor used to battle, we look at the asset class now at about 6% in yield.

4:50

And as an investor, you can augment that with triple B and double B paper to enhance your risk adjusted returns and yield.

4:56

And from a fundamental perspective, the growth story of Asia is really important.

5:00

We do see credit ratings on an improvement trend and average rating, for instance, in the JP Morgan Asia Credit Index currently sits at A minus (Source: J.P. Morgan, as of 27 March 2026) And looking at the high yield category of Asia fixed income outside of the real estate sector, high yield default rates have been close to zero. (Source: Bloomberg, as of 27 March 2026)

5:15

So you have a very attractive asset class where you could generate yield with very low correlation to global fixed income assets and also enhancing it from a diversification perspective as well.

5:25

Definitely a lot of exciting opportunities if you really take a more granular view right on both Asia equities and Asia fixed income assets.

5:34

So now against this backdrop, are there specific areas or themes you are particularly focused on within your asset classes?

5:42

Like where do you see opportunities that are perhaps not well appreciated by the broader market?

5:48

Again, as bottom-up stock pickers, we don't just buy the index.

5:52

There are thousands of companies across incredible diverse economies in Asia.

5:57

Look at the tech giants in Korea and Taiwan to digitalization leaders in Southeast Asia.

6:03

We can really treasure hunt for gems as a bottom-up stock pickers, the undervalue stocks with massive potential and they are anywhere if you know where to look in Asia.

6:14

So I'm just picking a few examples here.

6:17

The first one is the regional consumer stocks.

6:20

We're seeing a red disconnect.

6:21

The Asian consumer is actually spending for the markets are pricing them like they've stopped.

6:26

And then the next one is the Chinese Internet sector.

6:29

We have giants, the Internet giants trading at a single digit or low double digit PE ratios while sitting on massive piles of net cash.

6:37

In some cases, they are buying back shares at record rates, which provides a massive floor for investors as downside protection.

6:46

Last but not least, I'm particularly excited sitting here in Singapore of the Southeast Asia as a region, it is just undervalued.

6:54

It is in effect Southeast Asia is the quiet winner of the global supply chain shift away from China dominance to China plus N sort of model, wealth is being created in places like Indonesia as well as Thailand.

7:09

But despite the structural tailwind, MSCI ASEAN index is trading at a historical low at a price to book ratio of roughly only 1.3 to 1.4 times. (Source: MSCI, as of 27 Feb 2026)

7:21

I just echoing what Fiona had said. And we do invest in companies and sectors very similar to what Fiona had articulated from a fixed income perspective.

7:29

We do believe that staying invested is really important when you look at attractive levels of all in yields.

7:34

And building on to what I, I had explained earlier, the focus is really on risk adjusted returns and how divergent across sectors and countries are actually helpful for us as active stock picker because they generate alpha.

7:45

And this is the bottom-up credit selection process that we run in our team.

7:48

And on Asian companies and Asian borrowers in general, what we do see is that they have very diversified funding sources where they're able to tap credit from banks, private credit, public markets and have very strong access to local currencies.

8:01

So this means that we are investing in companies that have very healthy access to the market and access to financing.

8:07

And looking at that, we see very good opportunities in the double B and single B paper.

8:11

In double B space, we are looking at yields of 6 to 7% and in single B we are looking at 8 to 10% yield with very low default risk. (Source: Bloomberg, as of 27 March 2026. For illustrative purpose only.)
And also the ability to invest in some of the names that actually do benefit from higher oil price and higher gas prices.

8:25

And from a global investor perspective, we still see trends where Asia fixed income is under owned by global investors.

8:31

If I look at the high-quality space, Asia triple B's have actually underperformed developed market triple B's in 2026. (Source: Bloomberg , as of 27th March 2026).

8:38

So there's an argument that could be made for global investors to allocate more to high quality Asia fixed income assets.

8:44

And we think that Australia fixed income that's something that we see good opportunities.

8:48

We see opportunities where investors could get 6% yield by investing in single A rated corporate paper and the hedge pickup for US solar investors is positive.

8:56

So to summarize what the points say, I think staying invested is super important and we do see attractive all in yields where you can build a very robust portfolios using different building blocks from Australia, fixed income in the single A space Asia, triple B's for high quality paper and select double B and single B paper that could help to boost the yield of the overall portfolio.

9:15

So we're very excited about the various opportunities and I think we've always pivot to focus on fundamentals and dispersion helps to drive Alpha.

9:23

Definitely we were seeing a lot of opportunities giving the, you know, secular trends coupled with the AI revolution, right in a region with more than about like 60% of the world's total population.

9:33

I mean that representing an opportunity set just not to be missed, especially from a strategic point of view.

9:39

So we hope this episode helps you navigate the opportunities in Asian assets amid this year's market volatility.

9:47

And thank you for joining us on this third episode of the Investment Insights, institutional Conversations.

9:53

If you enjoyed today's discussion, don't forget to check out our next episode on our website.

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Hi, everyone.

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Welcome to Episode 2 of our Institutional Conversations podcast.

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I'm Chris Crea, our ETF strategist for Asia Pacific.

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And today I'm joined by my colleague Derek Fin, who runs our private credit business Strategy and Development for Asia Pacific.

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Hey, Derek.

0:22
Hey, Chris.

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Good to be here.

0:25
Why don't we start off with the headlines?

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We've been seeing quite a bit of negativity and emotional language, like cockroaches, for example.

0:33
Why is private credit being in the news lately?

0:36
Yeah, you really nailed it.

0:38
Unfortunately, private credit has been making all the headlines for all the wrong reasons over the past six months or so.

0:48
I really want to take a step back by defining private credit because I think it's very easy to get lost into defining private credit as this one massive asset class, right?

1:00
And as we know, there are a lot of different forms of private credit.

1:04
You have the less liquid side through corporate direct lending, which tends to be more non investment grade credit where you could get those higher yields potentially.

1:14
But on the other side of the spectrum, you have investment grade, high quality, publicly rated AAA access to what we like to think of as the liquid side of private credit.

1:27
So something like AAA CLOs.

1:30
So if you look at CLOs and investment grade CLOs, all those headlines around cockroaches and private credit, credit risk, liquidity concerns, valuation concerns, those don't apply to the investment grade part of the market.

1:46
So despite all the fear mongering and the headlines, we've still continue to see a lot of demand, particularly on the higher quality part of the private credit market.

1:57
That's a really good point, Derek.

1:59
Private credit isn't just one asset class.

2:01
You don't just have direct lending to your point, you have investment grade options out there and you have daily liquidity options as well, not just exposures with quarterly liquidity.

2:13
For example.

2:14
You mentioned these headlines are driving conversations in this asset class particular CLO AAA notes.

2:22
What else is driving this conversation for you?

2:25
Yeah, I think what's been interesting is you've seen the development of historically asset classes that were only available to institutional clients that have now created these through market innovation accessed by wealth clients as well.

2:43
And some of the concern there is, you know, these are asset classes that have historically only been assessable to institutional investors.

2:51
So why would a sophisticated institutional client that can either directly buy, I'm going to stick to CLOs, a AAA CLO tranche or CUSIP with their own portfolio management team, why would they decide to use, call it a more retail friendly product like an ETF?

3:10
And I think one of the main reasons there, if you think about the historical evolution of access to retail products, they've had to be in certain ways a diluted form of an institutional product, right?

3:24
Either because of regulation needs from the wealth or private bank channels or just that the higher fee component to manage a retail product. Today you're, you have institutional grade products with institutional fees.

3:41
So it makes more and more sense for institutional investors to maybe spend more of their time and resources and perhaps that the more manager selection due diligence specific investments and consider a call it ETF wrapper for some of the higher quality aspects of their portfolio.

4:00
What are some of the challenges you encounter when discussing CLO AAA notes as an asset class with investors?

4:09
Yeah, it's really interesting.

4:10
Unfortunately, CLOs, we share the same acronym as, as CDOs.

4:15
Of course, we, we know CLOs stands for collateralized loan obligations, CDOs are debt obligations.

4:23
They're synonyms, but they're very different.

4:25
CLOs, specifically AAA and AA CLOs, have actually never had a default historically, even during the financial crisis. (Source: Moody’s, Morgan Stanley Research, Data from 1993-2023. Past performance does not predict future returns.)

4:36
You compare that of course, to CDOs, which led to the financial crisis through subprime lending, you're looking at, you know, meaningful credit losses in AAA investments.

4:48
That's just had never been the case for AAA CLOs. Unfortunately, even with institutional, very sophisticated institutional clients. I've been in meetings where I'll mention CLOs and the client will practically walk out of the meeting because their CIO or their Investment Consultant bundle that up with CDOs.

5:10
So I think that education component is still has come a long way, but there's still some ways to go into getting clients comfortable with an asset class that sounds more complex than it actually is.

5:20
Right, so there's definitely some perceived complexity around this particular asset class.

5:25
However, it's clearly very institutional in quality given some of the, you know, the stats that you just walked through.

5:33
And despite all of this, we are still seeing significant adoption of CLO AAA notes by institutional investors for a range of different applications.

5:43
So what are some of the applications you're seeing investors use CLO AAA notes for?

5:50
Yeah, it's, it's really a wide gambit.

5:53
You think about newer institutional investors into private credit kind of looking for just the next step beyond fixed income, investment grade, fixed income AAA CLOs is a great fit for that.

6:05
You're adding more spread, more yield, you're diversifying away from some of that duration risk.

6:12
And you're actually also getting access to an alternative credit access class that has lower correlation to traditional assets.

6:23
The other aspect is clients that have already invested in AAA CLOs.

6:27
They might have a dedicated team that invest in the entire CLOs stack from AAA down to double B and even CLO equity.

6:36
And rather than spend their team's resources and in picking those AAA tranches, they're happy to outsource this given how efficient accesses today in an ETF wrapper, how low cost it is and then everything in between.

6:51
I think the most common use case has been somewhat of a cash plus just given how high quality this space is.

6:58
Again, never had a default historically even during the financial crisis.

7:04
I love your point around access and the ETF vehicle has changed this pretty meaningfully for the better.

7:11
I mean to your point, CLO AAA notes, probably syndicated bank loans.

7:15
These are asset classes that have historically been very difficult for investors to access unless you were a very large influential investor like a large pension fund or insurer.

7:26
But the ETF has democratized access to this institutional quality asset class and like you said, allowed investors to move away from the traditional allocation to U.S.

7:39
Treasuries, U.S.

7:39
dollar, investment grade credit, high yield, and really diversify the fixed income sleeves, improve their yield outcomes, improved quality profile of their fixed income portfolio, and incorporate some diversification across the capital stack.

7:56
So really exciting.

7:58
Some great conversations happening out there.

7:59
Derek, it sounds like. Well, everyone with that, this has been Episode 2 of our Institutional Conversations podcast.

8:06
Derek, thank you very much and we'll see you all next time.

8:09
Thanks, Chris.

0:09

Welcome to our inaugural podcast, Investments Insights Institutional Conversation.

0:14
I'm Brian Levitt.

0:15
I'm the chief global market strategist and head of Strategy and Insights at Invesco.

0:20
Today, I am thrilled to be joined by Chris Hamilton.

0:22
Chris is the Head of Investment Solutions Asia Pacific ex Japan.

0:28
Chris, welcome to the inaugural podcast.

0:31
Brian, thank you for having me.

0:32
It's amazing to be here and I really look forward to having this conversation with you today.

0:36
Yeah, so this is a new series.

0:38
We're going to be releasing these episodes each month.

0:40
It's available to listen to an AP institutional website, and we're going to be talking about a whole variety of things.

0:47
So Chris, I wanted to jump right in.

0:50
We've moved into this new year.

0:52
We produced an outlook talking about a resilient economy, perhaps the need to rebalance.

0:57
In fact, the title was resilience and rebalancing.

1:00
And so, so looking at a world where growth could pick up modestly, central banks are relatively supportive.

1:08
Anything not to like about that?

1:10
Yeah.

1:10
So I mean, I think in general our kind of mindset and what we see from clients is an environment where clients want to take risks, they just want to do thoughtfully and intelligently.

1:20
And I think really the phrase resilience and rebalancing kind of encapsulates and captures what Asian investors are trying to do in 2026.

1:27
You have very concentrated equity markets at the high end, but clients know they need to be exposed to participate in that growth opportunity.

1:36
So I think clients want to take risks.

1:38
They just want to be kind of guided and advised on how to effectively do that, how to globally diversify.

1:43
So it's very much a thoughtful nuance conversation around diversification, asset allocation, waiting, appropriate geographies and sectors versus just kind of a more of a binary kind of risk on risk off.

1:55
And one of the nice things is last year we did get to have what I would categorize as something of an everything bull market.

2:02
It was hard to find a part of the market that didn't do well.

2:04
And you know, when investors think about concentration or valuation, you hope that there's opportunity to do well in other parts of the market besides mega cap tech.

2:16
And from the perspective of a pickup in economic activity and easier policy, perhaps that does continue to build this opportunity where other parts of the market do well, whether it's non-us or whether it's smaller capitalization or value oriented portfolios.

2:34
Yeah, it makes complete sense.

2:36
And I think from our perspective, we see over here in Asia when we're kind of engaging clients, that notion of geographic diversification does really come into play.

2:45
And there's really been a shift in change, particularly in the sentiment coming out of China since the end of 2024, which has been pretty meaningful.

2:53
So investors have really they started to look at opportunities kind of in that space that really picked up in 2025.

2:59
I think the notion whole story around kind of de dollarization comes into play in a lot of my conversations.

3:07
Geopolitics comes into play.

3:08
And I think all that points to kind of a more diversified portfolio at least like from an equity perspective.

3:14
And then also kind of looking outside of public markets, thinking of what are ways investors can harvest return premium outside of traditional public markets, so leaning into private markets And Asian investors are typically, they're on a bit of a different journey in that space.

3:27
And US investors are.

3:28
So they don't have this kind of built out diversified exposures there.

3:32
So a lot of opportunities to have conversations across both public and private.

3:36
But like you said, I think the environment in general is very good for taking risks, just kind of doing so intelligently and thoughtfully, being cognizant of some of these more macro risks that are embedded in the environment right now.

3:47
It sounds like your clients in Asia and our clients in North America are concerned about similar things, whether it's geopolitical risk or implications for the dollar.

3:57
I try to push back a little bit, or at least with regards to geopolitical risk, help them put a lot of what's going on in the world into some perspective.

4:05
I always remind them with any geopolitical event, does it change the trajectory of the economies of the major players of the world or does it change what the central banks are going to do?

4:17
And for the most part, at least up until now, the answers to those questions have generally been including Venezuela.

4:25
Yeah, I completely agree with that really quickly.

4:27
So I mean, having similar conversations, I do think the notion of geopolitical risk, at least in Asia does, I think it overplayed from a narrative perspective and kind of having those conversations, OK, what are the kind of the ultimate implementations of ultimate implications of this and kind of what you see is the market absorbing some of this narrative like very, very well.

4:48
Well, you know, we'll hear the narrative.

4:49
Well, geopolitical risks is at all-time high.

4:51
It's like, well, yes, so are global equities too.

4:53
I completely agree with these things.

4:55
I wanted to just kind of interject there and mention that.

4:57
Yeah, I agree.

4:57
And the de-dollarization concept, I choose to generally frame it as less of de dollarization, but perhaps the first opportunity to diversify away from the dollar in a very long time.

5:09
And the thing about the whole strong dollar environment, I would argue that part of that exceptionalism of the US was very powerful responses to 2020, but then also great bellwether tech businesses.

5:22
And what you're seeing now is policy support in most places of the world, right, a gradual Fed easing cycle.

5:30
And what you're also seeing is a lot of great tech businesses not only in the United States, but also in China and other parts of the non-us markets.

5:38
Absolutely, Yeah.

5:39
So I think the de-dollarization piece comes up here.

5:42
It's kind of two-fold, right, where you have a lot of investors who are kind of base or structured around non USD liabilities and they have long USD exposure.

5:52
So they see that asset liability mismatch and I think it creates some consternation there.

5:56
And that's where a lot of the conversation around like de-dollarization comes up.

6:00
Obviously, the China conversation drives that considerably.

6:03
But even that's another area too where I think you have to put the conversation and contact and it's like, well, it doesn't mean that the dollar is going to go from kind of 80-85% of trade volume to 50%, right?

6:15
Even if it does decline, it's going to be a pretty marginal number.

6:19
But like you said, it makes and creates a pretty good opportunity for investors to diversify some of that exposure.

6:25
So if you're an investor in Singapore or Thailand or Malaysia integrating whether it's European based exposure or another kind of currency in the air portfolio actually looks attractive from a risk adjusted return perspective.

6:39
I would argue it's healthier, right?

6:41
It's a broader environment when you think of any risks that may exist out there.

6:46
So anything that you're talking to clients about in terms of things that they may want to hedge or any challenges that they may want to approach within their portfolios.

6:55
Yeah, it's a great question.

6:56
So I think right now, you know, the investors we talked with are really trying to effectively balance that notion of market participation and adequate protection in a portfolio.

7:07
Obviously, diversification, whether it be from a geographic perspective or from a sector perspective is a great way to think about that.

7:15
But I mean the notion of diversification stretches beyond that.

7:17
It goes into private markets, it goes into kind of other asset classes, other alternative asset classes.

7:23
It also goes into thinking about whether it be more defensive or kind of hedging-based solutions in a portfolio.

7:30
So strategies that maybe have kind of a natural defensiveness embedded in and think about options income type strategies or strategies that automatically or effectively mitigate volatility when risk is high.

7:42
So some of those more unique solutions I think are coming into play right now, particularly with large institutional asset owners who've made pretty significant gains over the last, let's call it six or seven years who want to inject some levers of protections.

7:56
Like some of the more complex solutions are really kind of coming into the fold right now and you see some of the bigger asset owners start to implement those.

8:04
And you'll also see that momentum kind of go downstream with some of the smaller to mid size investors.

8:08
It's interesting how you and I are sitting very far apart from one another in terms of where we are in the world.

8:14
And yet the views, the conversations, a lot of things that are on investors’ minds right now seem incredibly similar, which probably shouldn't be a surprise.

8:22
So Chris, I really enjoyed this conversation.

8:25
Thank you so much for engaging with me in it.

8:28
You know, we hope this episode can encourage you to think differently about the asset allocation opportunities as well as some of the challenges we have in 2026.

8:37
Thank you all very much for joining us on this first episode of the Investment Insights institutional Conversation.

8:44
Chris, thank you for joining.

8:46
If you enjoyed today's discussion, don't forget to check out our next episode, the website.

8:52
Stay tuned.