At the start of 2025, a noticeable trend emerged among funds in the Asia bond Morningstar Category, with many exhibiting broadly similar positioning in terms of country allocations. The exhibit below, based on Morningstar data, highlights this convergence in positioning.
Consensus Seen Among Asian Bond Funds on Key Markets
China and Hong Kong Out of Favor
Troubles in China’s property sector have led most Asian bond funds to maintain an underweighting in Chinese bonds. Outside the property sector, higher-quality Chinese investment-grade bonds have been trading at expensive valuations owing to strong demand from onshore investors, reducing the attractiveness of this segment, too.
Hong Kong credit, which was largely immune to the Chinese property market selloff between 2021 and 2023, faced renewed headwinds in 2024. Investor concerns over the credit profile of prominent Hong Kong property developer New World Development, along with potential spillover effects from a weak property sector to the broader economy, prompted many funds to trim their stakes in the region.
India, Japan and Australia are Popular Bets
Asian bond funds have significantly increased their allocations to India over the past three years, encouraged by the country’s strong economic fundamentals, though caution remains around elevated valuations. In 2025, many managers anticipate a rise in the bond supply from Indian issuers, particularly first-time entrants to the dollar bond market, thereby deepening the pool of investible opportunities.
Meanwhile, US-dollar-denominated bonds of Australian and Japanese credits have also witnessed rising popularity among Asian bond investors owing to their relatively higher credit quality and attractive yields. This shift has been further accelerated by a sharp decline in bond supply from traditional Asian markets such as China and Indonesia.
Overall, while Asian bond funds may exhibit similar overall positioning—particularly in terms of country allocations—performance is also heavily influenced by factors such as credit selection. Teams that can delve deeper into markets, supported by robust credit research and strong risk management practices, will be better positioned to deliver outperformance.
More details about trends in the Asian bond market are available on https://www.morningstar.com/en-hk/business/insights/research/asian-bond-funds-market-trends
