德银-亚洲-信贷市场-亚洲信贷月报：年底的杠铃策略-20171025-Deutsche_Bank-Asia_Credit_Monthly_Barbell_into_the_year-end_48页_2mb

Asia Credit Monthly Barbell into the Year-End Summary

Core Content

The Asia credit market continues to be influenced by a macroeconomic environment that supports growth and low inflation, which in turn supports fund flows and risk assets. Despite political noise across major countries, the market remains resilient, supported by a weaker dollar and higher commodities. The DB view is that these trends are unlikely to reverse, and the overall picture is expected to remain stable for the rest of the year.

The report emphasizes a barbell strategy for the year-end, suggesting investors should focus on wider trading BBB bonds and select single B names, while reducing exposure to tighter BB bonds. The strategy is based on the expectation of a carry-driven environment and the relative value of different credit segments.

Main Themes

• Wider trading BBBs offer better value than tighter BBs: BBB bonds have shown stronger performance and tighter spreads, making them more attractive.
• Some juice left in Bank T2s: Bank bonds with T2 ratings still present value opportunities.
• China property – no need to panic: The China property sector is showing signs of stabilization, with spreads tightening and fundamentals improving.

Key Recommendation Changes

• Sovereigns:

  • Buy: Mongolia 2024s, Malaysia 2046, Indonesia 2037, China 5Y CDS
  • Sell: Sri Lanka 2025s, Indonesia 2047s
  • Downgrade: Malaysia 2026s from Buy to Hold

• Financials:

  • Buy: Woori 2024s T2, BEA 2026s T2, Mizuho 2025s T2, Nippon Life $4%$ c27, BoCAvi 2026s, CDB Leasing 2024s, Huarong $2.875%$ Snr Perp, OCBC $4.25%$ 2024s T2
  • Sell: SBI AT1, Canara 2022s, BoChina 2025s, 2024s, BoComFL 2022s, CITIC Ltd 2026s & 2027s, CCB Life $4.5%$ c22
  • From Buy to Hold: Huarong 5% 2025s & 4.625% 2026s, Cinda 4.25% 2025s
  • From Sell to Hold: Mizuho 4.6% 2024s, CITIC Ltd 2021s, IDBI 2020s
  • From Hold to Buy: Mizuho 4.353% 2025s T2

• IG Corps:

  • Buy: Bharti 2024s, Global Logistic Properties 2025s, Paiton Energy 2037s, State Grid 2027s
  • Sell: Baidu 2022s
  • Initiate: China Overseas Land 2043s with Buy

• HY Corps:

  • Buy: Sunac 2022s, Vedanta 2024s, Ruyi 2019s & 2022s
  • Sell: Shui On Land $6.4%$ PerpC22s, Motherson Sumi 2021s

Key Insights

• Asia credit spreads have tightened by 10bps MTD, partly due to the expected China sovereign deal.
• HY outperformed IG in total returns, with HY to IG spread ratio at 2.6x, higher than historical levels.
• Commodities (excluding oil) have performed well, driven by demand growth and China's capacity cuts.
• Cash and CDS have performed in line, with no immediate catalysts for divergence.
• China property IG has tightened by 60bps YTD and 19bps since September, outperforming HY and IG corporate sectors.
• Supply levels in Asia have been high, but spreads remain tight, indicating strong demand.
• China property fundamentals are improving, with leverage peaking and inventory levels relatively low, suggesting no major price drop in the short-term.
• BB rated bonds are seen as expensive and are not recommended, with specific names like Car Inc 2020s & 2021s and Renew 2022s being sold.

Performance Highlights

• Asia Credit Overall: -41bps, +5.1% total returns
• Asia IG: -39bps, +4.8% total returns
• Asia HY: -76bps, +6.9% total returns
• China property IG (ex-perps): -60bps YTD, -19bps since Sept
• Markit Asia IG: -42bps, -18bps since Sept
• Markit China corp IG Index: -46bps YTD, -18bps since Sept
• Markit China property HY Index: -4bps YTD, -52bps since Sept

Strategic Outlook

• The barbell strategy is recommended, focusing on BBB and single B names while reducing BB exposure.
• China property is seen as resilient, with spreads tightening and fundamentals improving.
• The report highlights that while the market has been volatile, the overall trend remains positive, and there are still pockets of value in the credit space.

Conclusion

The Asia credit market is expected to remain stable and carry-driven for the remainder of the year. Investors should focus on BBB-rated bonds and select single B names, particularly in the China property sector, while being cautious with BB bonds. The barbell strategy is seen as the optimal approach to capitalize on the current market conditions and relative value opportunities.