Outlook & Positioning for the GIS Asia High Yield Bond Fund as of October 2025
In this article, we as PIMCO summarize our positioning and outlook for the Asia High Yield Bond Fund as of October 2025.
Contributors:
- Tactical positioning to non-EM Asia corporate credit and financials exposure contributed to relative performance
- Credit selection in Sri Lanka and Pakistan sovereign credits contributed to relative performance
Detractors:
- Credit selection in China real estate and exposure to a select HK property developer detracted from relative performance
- Underweight exposure to Indonesia and Sri Lanka industrial quasi-sovereign credit detracted from relative performance
- Credit selection in Philippine industrial and Macao gaming sectors detracted from relative performance
Positioning
- We expect performance in Asia high yield to be uneven with differentiation in fundamentals likely to continue, highlighting the importance of active credit selection. We continue to maintain a focus on a high quality and diversified portfolio and choose to not stretch for yields. The Fund focuses on sectors with stronger long-term growth potential and more attractive relative value.
- Overall, we are maintaining a patient and defensive approach in our portfolios due to potential volatility from trade tensions and geopolitics. We are more selective in countries such as China (U.S. strategic competitor) and more open economies within Asia. From a sectoral standpoint, we are more cautious on sectors such as autos (tariff prone), banks (could see more accommodative easing from central banks and lower rates hurting margins), and transportation. We favor more stable sectors such as utilities, and domestic focused names. We are maintaining ample amounts of dry powder and preserving liquidity in view of any potential spread cheapening because of the volatility. We are also maintaining a longer duration stance given negative growth impact.
- We see a divergence in growth within Asia. We are constructive on India as the economy benefits from robust economic and credit growth. More broadly, we expect performance dispersion within Asia credits to be high, and as such, we look to rely on the insights and top picks of our credit research analysts and expect to maintain a selective and up-in-quality approach.
Outlook
- Globally, growth appears to be peaking. We expect it to slow in 2025 as tariffs trigger adjustments. Near-term risks are tilted to the downside as front-loading has masked weakness. Chinese growth is already cooling. Trade pressures and domestic challenges are being partially offset by government support, but more is likely needed. In emerging markets (EM), weaker growth and stronger currencies create significant room for rate cuts amid trade shocks, limited fiscal flexibility, and slower monetary transmission. Many Asian central banks have made multiple policy rate cuts so far this year and dovish central banks’ policy should help keep tariff impact manageable. We favor domestic-focused sectors such as utilities, infrastructure, etc.
- The extension of trade truce between U.S. and China has provided more buffer for near-term growth. The front-loaded exports, exports diversification and rollout of counter-cyclical measures have attributed to the upside surprise. External uncertainty also remains high as trade tension persists in medium-term, and continuous easing is needed, but there is more limited room for further fiscal expansions given structural fiscal and debt constraints. Overall, China’s economy must deal with excess economic capacity by stimulating domestic private activity or set growth targets at lower levels that strictly contain production. Until China sees more progress in these efforts, its deflationary domestic conditions will very likely continue to spill over into the global economy, with countries that have still-low trade barriers most affected.
- Locking in today’s attractive bond yields presents a compelling opportunity to support income, returns, and potential price appreciation in the years ahead across a variety of economic scenarios. The fixed income opportunity is especially timely with central banks globally poised to cut interest rates further. Amid ongoing policy uncertainty, we must consider a range of possible outcomes. It makes sense to focus on a diversified set of investments and to prioritize portfolio resilience. Asia credit investment continues to offer added diversification benefits and offers higher all-in yields relative to global credit markets.
- Asia credit supply recovered in 2024 but remains below peak levels. In 2025, supply is expected to improve from 2024 levels but remain flat to negative on net basis, as Asian issuers remain price-sensitive given their access to cheaper funding alternatives from banks and onshore markets.
- Asia credit spread and yield remain at historically heightened levels, but there could potentially be more volatility ahead. With a current spread over Treasuries (SOT) of 426bps, Asia HY continues to trade relatively wide with a 117bps and 123bps premium over U.S. and global high yield corporate respectively – carry remains attractive for yield focused investors.
免責聲明 All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Investors should consult their investment professional prior to making an investment decision. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.