Why T. Rowe Price's Underweight Asia Strategy Contrasts with Rising Demand for Malaysian and Thai Bonds

In 2025, T. Rowe Price's underweight stance toward Asian emerging markets stands in stark contrast to the surging demand for Malaysian and Thai bonds. While the firm has adopted a cautious approach to the region, citing trade policy risks and macroeconomic uncertainties, investors are flocking to these Southeast Asian markets, driven by favorable credit fundamentals and divergent monetary policies. This divergence underscores a critical question: Why do market realities in Malaysia and Thailand challenge the logic behind T. Rowe Price's strategic underweight?

The Case for Caution: T. Rowe Price's Rationale

T. Rowe Price's midyear 2025 outlook emphasizes a reevaluation of global asset allocations in response to deglobalization, U.S. trade policy upheavals, and inflationary pressures. The firm's underweight position in Asian emerging markets, particularly China, reflects concerns over weak consumer demand, property sector woes, and geopolitical tensions. Additionally, the Trump administration's “Liberation Day” tariffs have disrupted global supply chains, creating a supply shock in the U.S. and a demand shock for export-dependent Asian economies.

The firm's investment strategy prioritizes diversification and resilience, favoring high-quality corporate bonds and select EM debt over broad exposure. For example, T. Rowe Price has underweighted crowded trades like Taiwan Semiconductor Manufacturing Co. (TSMC) and Alibaba Group, citing valuation risks and sectoral volatility. This cautious approach extends to Asian emerging markets, where the firm views mixed performance and policy uncertainties as headwinds.

The Malaysian and Thai Exception: A Contrasting Trend

Despite T. Rowe Price's skepticism, Malaysia and Thailand have emerged as bright spots in the Asian EM debt landscape. In July 2025, Thailand's 30-year benchmark bond attracted the highest bid-to-cover ratio in two years, while Malaysia's super-long-term bond issuance in June drew “bumper demand.” These developments reflect robust investor appetite, fueled by structural advantages and proactive policy management.

1. Credit Fundamentals and Fiscal Prudence
Goldman Sachs analyst Kenneth Ho highlights that large Asian economies, including Malaysia and Thailand, have maintained resilient sovereign credit ratings due to strong currency reserves, limited external debt exposure, and healthy current account balances. For instance, Thailand's fiscal deficit has remained below 6.7% of GDP since 2024, outperforming the U.S., where deficits ballooned to 7.3% in 2024. This fiscal discipline has reduced perceived credit risk, as evidenced by declining credit default swap (CDS) spreads for Asian EMs.

2. Monetary Policy Divergence
Emerging market central banks, including Malaysia's and Thailand's, have responded to inflation more swiftly than the U.S. Federal Reserve, enabling earlier rate cuts and favorable yield differentials. In 2025, Malaysian and Thai 10-year bond yields fell to 4.2% and 4.5%, respectively, while U.S. yields climbed to 5.3%. This divergence has made EM bonds more attractive, particularly as U.S. fiscal deficits and inflationary pressures erode confidence in developed market debt.

3. Structural Reforms and Growth Resilience
Southeast Asia's structural advantages—such as demographic tailwinds, tourism recovery, and green energy investments—have further bolstered investor sentiment. Thailand's tourism sector, for example, has rebounded to pre-pandemic levels, contributing to GDP growth of 5.2% in 2025. Malaysia's focus on semiconductors and renewable energy has also positioned it as a key player in global supply chain realignments.

Policy Divergences and Market Valuations

The contrast between T. Rowe Price's underweight stance and the rally in Malaysian and Thai bonds can be attributed to divergent policy frameworks and market valuations. While the firm highlights global trade risks and macroeconomic fragility, Southeast Asia's EMs have leveraged fiscal prudence and proactive monetary policy to insulate themselves from external shocks.

For instance, Thailand's 10-year bond yield has fallen by 120 basis points since mid-2024, outpacing India and Indonesia, which have seen narrower declines. This reflects Thailand's success in managing inflation and maintaining investor confidence. Similarly, Malaysia's corporate bond market has seen a surge in high-grade issuance, with over 80% of J.P. Morgan Asia Credit Index Diversified bonds rated investment-grade.

Investment Implications

T. Rowe Price's underweight strategy underscores the importance of active management and risk mitigation in a volatile global environment. However, the performance of Malaysian and Thai bonds suggests that selective exposure to EM debt can offer attractive risk-adjusted returns. Investors should consider:

1. Quality Over Broad Exposure: Focus on high-grade EM bonds in markets with strong fiscal and monetary frameworks, such as Malaysia and Thailand.
2. Diversification Across Regions: Balance underweight positions in overexposed EMs (e.g., China) with opportunities in Southeast Asia.
3. Monitoring Policy Shifts: Stay attuned to central bank actions and trade policy developments, which can rapidly alter market dynamics.

Conclusion

T. Rowe Price's underweight stance on Asian emerging markets is rooted in a prudent, macro-driven approach. Yet, the rise of Malaysian and Thai bonds demonstrates that not all EMs are equally vulnerable to global headwinds. By leveraging fiscal discipline, structural reforms, and proactive monetary policy, these markets have carved out a unique value proposition. For investors, the key lies in distinguishing between high-risk and high-quality EM debt, ensuring that strategic underweights do not overlook pockets of opportunity.