US-headquartered global investment firm, Capital Group, has announced via media note two senior appointments within its Asia-based fixed income division.
Manusha Samaraweera relocates to the group’s Singapore office from Sydney, where he joins the firm as Fixed Income investment director for Asia Pacific, excluding Japan. He brings to Capital Group more than thirteen years of experience at Pimco, having served most recently as a fixed income and ESG strategist.
Meanwhile, Haran Karunakaran, who has been with Capital Group for two and a half years in Singapore, is set to relocate to Sydney as Fixed Income investment director for Asia Pacific, with a focus on Australia. His experience to date includes time spent at Pimco’s London base, as well as roles at National Australia Bank (NAB) and AMP Capital in Australia, according to his LinkedIn profile.
In their new capacities, both team members report to Scott Steele, head of Fixed Income business development for Asia and Europe, a spokesperson for Capital Group confirmed.
The move to expand the group’s senior investment capability coincides with “very strong demand for fixed income solutions” across its Asian client base, Karunakaran told FinanceAsia.
He explained that the driving force behind this market development is “a combination of historically attractive bond yields – levels not seen in well over a decade – and a desire for more defensive allocations in an uncertain market and macroeconomic environment.”
“We also see increasing interest from investors looking for sources of income outside of term deposits and other cash-like securities, given the potential for interest rates to decline into 2024,” he added.
Cycle-specific
Karunakaran views a potential inflection point in monetary policy as being one of the most significant contributors steering current market movement, as central banks approach the end of current rate hiking cycles.
“For example, in the US, the futures markets are pricing in a peak in the Fed funds rate across the next few months, followed by rate cuts in 2024. This will have significant and potentially long-lasting implications for financial markets.”
Analysis of the firm’s 50 year-strong historical data suggests that cycle inflection points can be problematic for investment in cash-like instruments.
“In past cycles, the return on cash fell on average by 2.2% in the 18 months post the last rate hike. The decay in cash returns once central banks stop hiking, is significant and fast,” he told FA.
Conversely, Karunakaran noted that a shift by the Fed from rate hiking to cuts could prove positive for bond markets: “Historically, investment grade corporate bonds on average returned a cumulative of 32% in the three years after the last rate hike in a cycle – almost equity like returns for a high quality, defensive investment.
Amid the uncertain environment, the Capital Group team encourages allocation to high quality issuers with track record.
“For many investors, investment grade corporate bonds is a sweet-spot, providing a good balance between defensive characteristics and strong return potential,” Karunakaran said, highlighting that such opportunities can yield up to 6% with a low probability of capital loss.
“A shift in central bank policy from hiking to cutting rate could provide an additional boost to returns over the coming years,” he added.
However, the team remains bullish about emerging opportunity elsewhere.
Karunakaran pointed to local currency markets as offering potential. Exposure to these is a key investment consideration employed by the group’s emerging market debt fund – a strategy that aims to diversify across multiple currencies and markets.
“Today, the portfolio has a tilt towards local currency bonds and we have been seeing particular value in certain Latin American markets such as Brazil and Mexico. These countries are ahead of the curve on monetary policy and inflation, so offer attractive real yields and potential to benefit from a pivot to rate cutting,” he concluded.
