The outlook for Asian fixed income winners and losers emerge

The outlook for Asian fixed income: winners and losers emerge Asia’s economic story is There are two strands to Asia’s growth story in 2026: AI and becoming increasingly uneven. semiconductors continue to boost Key takeaways As AI-driven economies pull tech-linked economies, with demand • A strong US dollar is a ahead and others struggle for electronics and data centres challenge for Asian fixed with weak domestic demand, extending this boom across the income, but we do not region. At the same time, economies investors face a much wider foresee a rerun of the relying heavily on uneven domestic disruptions seen in 2022. gap between likely winners demand face challenges and may • Markets may be and losers than in recent years. need greater policy support. overestimating the risk of rate hikes by Asian That diverging story has remained in central banks, creating Mark Tay CIO Fixed Income Asia Pacific place since the start of the year. What opportunities for has changed is the monetary policy active managers. debate, which has evolved from hopes • The US-Iran conflict has not Ang Ze Yi Portfolio Manager, that interest rates will be cut to the hit Asian credit as hard as Fixed Income Asia Pacific expectation of hikes. The key question expected – some issuers is how much of the tightening are benefiting. Umar Manzoor currently priced into markets will be Director of Corporate delivered. Research EM

THE OUTLOOK FOR ASIAN FIXED INCOME: WINNERS AND LOSERS EMERGE

In credit, the overhang from the Exhibit 1 US-Iran crisis will likely continue to Asian currencies enter this cycle with less stretched dominate the macroeconomic growth outlook. This could introduce volatility valuations than in 2022 into credit markets; however, our Real effective exchange rate deviations outlook for Asian credit fundamentals % is stable, underpinned by strong 20 fundamentals. 15 14

10 Here, we reveal our key themes for 5 Asian fixed income investors in the 5 4 4 1 second half of THEME Cyclical dollar strength is a -16 -17 -16 -20 headwind, not a crisis A strong US dollar tends to raise SGD KRW THB MYR CNY IDR INR PHP borrowing costs for Asian issuers End-21 Five-year average while driving capital outflows. With US interest rates expected to rise and Source: AllianzGI, Bloomberg, as at 7 August 2026. SGD = Singapore dollar; KRW = Korean won; US growth showing resilience, we THB = Thai baht; MYR = Malaysian ringgit; CNY = Chinese renminbi; IDR = Indonesia rupiah; INR = predict that a strong dollar will be a Indian rupee; PHP = Philippine peso. headwind for Asia for at least the next six months. markets – but we do not expect a The strength in exports has also However, we do not expect Asian uniform sell-off. The dollar remains been accompanied by stronger fixed income to endure the kind of a headwind, but not one that investment. Semiconductor producers broad and disorderly adjustment that invalidates the structural case for in Korea and Taiwan are raising was seen following the last period of Asian local bonds. capital expenditure, while Korea, rapid US rate hikes in 2022. Our house Thailand, India and Malaysia have view foresees a moderate two-hike emerged as major recipients of data cycle from the US Federal Reserve this THEME 2 centre investments. year, a shallower policy cycle than in 2022. Meanwhile, Asian currency AI is powering factories, Yet the benefits have not spread valuations provide a buffer. Most but households are being evenly into the domestic economy. Asian currencies are trading below left behind Strong export receipts have yet to their 10-year real effective exchange generate a broad improvement in rate medians and are less expensive The AI cycle has broadened more than labour demand or household income, than the levels seen going into 2022 expected. Korea and Taiwan remain and consumer confidence remains (Exhibit 1). the central nodes of the hardware weak across the region. A firmer US dollar can limit policy supply chain, but the benefits now independence in economies with extend into Singapore, Malaysia and India and Indonesia continue to weaker external financing positions, Thailand, through other electronic post respectable domestic…