One of the largest US fund managers says the domestic bond market in China provides a healthy dose of diversification, and plans to keep plowing money there, even in the midst of tensions between the two nations.

"Clearly, nothing would stop us from spending more money on working in China over time," said James Blair, Capital Group's Asia-Pacific investment director for fixed income, in an interview in Sydney. Blair pointed out that investors like the narrative of China and "we will keep adding assets to the domestic market of the country."

This makes the Capital Group, which controls more than $1.8 trillion, part of China's local bond market record inflow. Beijing has gradually opened up to attract foreign investors to offset the yuan's stresses and has also eased growing fears about any economic decoupling between the two largest economies in the world.

Former US Treasury Secretary Henry Paulson blasted last week at the Bloomberg New Economy Forum in Beijing on the "delusions of decoupling." He warned politicians and bureaucrats against saying how to deploy private capital for private purposes to "private American players."

Even so, there has been a decline in demand for China's sovereign dollar bonds between the country and the US. Allocations to the overseas US shareholders were in the one-digit percentage range in the record release this week, a comparable result to 2018, and a significant comparison to 2017, before the trade war broke out.

Blair declined to comment specifically on China dollar bonds. A a three-decade veteran on the bond market, he said Capital Group owns Chinese sovereign and policy bank bonds as well as a small amount of credit in the $350 billion fixed-income markets.

China's securities offer significant discounts over other large economies, "There are pretty attractive yields in China for a high-credit nation in a low yield environment," Blair said. "Also, something that's unusual in the bond market, is not always connected with the bond world in general. We always like to have some diversifiers," he added.

Blair also likes other emerging-market debt in a local currency, including that of Malaysia and Thailand. Capital Group favored India, where the central bank did "the right things in debt for investors," he said.

Heading into next year, despite a small pick-up in data, global economic growth should remain feeble, and investors should likewise maintain a strong tilt to areas that can hand them income, Blair said.