20230105-招银国际-After_dawn__Asia_Credit_outlook_2023_43页_2mb

CMBI Credit Commentary Summary

Core Content

This document provides an analysis of the Asia credit market outlook for 2023, focusing on the performance of the market in 2022 and the potential for recovery in the coming year. It highlights the key drivers influencing the credit market, including fundamentals, valuations, and technical factors such as fund flow and issuance trends. The report also includes specific investment recommendations across various sectors.

Main Points

2022 Performance Overview

• The Asia credit market experienced a significant downturn in 2022, with ACIG and ACHY posting returns of -12.3% and -19.9%, respectively.
• Asian HY corporations notably underperformed compared to other EMs, while Asian IG corporations outperformed.
• Gross issuance in Asia ex JP decreased by 52% to USD165.1bn, the lowest since 2014.
• Net issuance was negative USD105.2bn, marking the first negative net issuance year since 2008.

Outlook for 2023

• The credit market is expected to rebound after two years of correction, driven by the re-opening of China.
• Valuations are seen as more attractive with a sufficient margin of safety.
• Technical indicators suggest a more favorable fund flow environment, although near-term volatility remains a concern due to factors like the reopening of China, US rate hikes, and geopolitical tensions.
• A mild recession in the US is anticipated starting from 2Q23.

Key Investment Picks

AMCs (Asset Management Companies)

• HRINTH 4.25 PERP
• HRINTH 5.5'25
• CCAMCL 4.4 PERP
• CCAMCL 4.375'25
• GRWALL 3.95 PERP

AT1s (Additional Tier 1 Bonds)

• BCHINA 3.6 PERP
• ICBCAS 3.58 PERP
• DBSSP 3.3 PERP
• UOBSP 3.875 PERP
• SHINFN 5.875 PERP
• KBANK 5.275 PERP
• KTBTB 4.4 PERP

Car Rentals

• CARINC (preferred due to more resilient operating performance)
• EHICAR

Chinese Properties

• CHJMAO
• CSCHCN
• DALWAN
• GRNCH
• HPDLF
• LNGFOR
• SEAZEN
• VNKRLE
• YLLGSP

Corporate Perps (Perpetual Bonds)

• PCORPM 4.6 Perp
• UPLLIN 5.25 Perp
• NWDEVL 6.15 Perp
• NWSZF 5.75 Perp

LGFVs (Local Government Financing Vehicles)

• SHUGRP 4.3'23
• HKIQCL 3.99'23
• HZCONI 3.15'23
• YWSOAO 3.15'23

Macau Gaming

• MPELs and STCITYs are preferred due to lower conviction after a strong rebound.

SE Asia Commodities and Renewables

• GRINKENs
• INDYIJ 8.25'25
• SAKAEI 4.45'24
• VEDLNs (especially short-dated and secured ones like VEDLN 23s, secured VEDLN'24 and 25)

TMTs (Technology, Media, and Telecommunications)

• PDD 0'25
• XIAOMI 0'27

Key Information

Fundamentals

• Policy support for economic growth in China is expected to drive recovery.
• CMBI Research anticipates China's economic growth to accelerate to 5.1% in 2023 and 4.7% in 2024.
• Other major Asian economies are expected to grow between 3.7% and 6.5% in 2023-2024, outperforming the US and Euro zone.
• The reopening of China is seen as a positive catalyst for economic activity and the property market.

Valuations

• The credit market has seen a significant drop in value, creating a margin of safety.
• Selected sectors such as Chinese properties, car rentals, and AT1s are seen as offering attractive valuations.

Technical Factors

• Fund flow has been negative but is expected to improve in 2023.
• US rate hikes and USD strength are likely to moderate, supporting EM performance.
• The credit market is expected to see a rebound in gross issuance as sentiment improves.

Volatility Risks

• Near-term volatility is expected due to:
  • Surge in cases and deaths from China's reopening.
  • Sensitivity of US rate hikes to CPI, NFP, and global economic outlook.
  • Geopolitical tensions and negative headlines such as defaults and rating actions.

Conclusion

Despite the challenges of 2022, the CMBI team believes the Asia ex JP credit market will perform better in 2023. The report outlines a range of investment opportunities, emphasizing the importance of fundamentals, valuations, and technical indicators in shaping the outlook. The preferred investments are based on their resilience, yield potential, and favorable risk-return profiles.