汇丰银行-亚太地区债券市场展望-2019.3-167页.pdf

Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.Play interview withDilip ShahaniFixed IncomeAsia CreditMarch 2019By:HSBC Asia credit research teamThe VIEWWe believe the Asian credit marketswill face a few speed bumps along the way to impressivefull-year returns Also insideWe have adopted a more neutral stance towards the USD China LGFV bond space,and believe an offshore bond default is unlikely in the shortterm We see a hat-trick in the making for China property HY and expect a third consecutive record year of issuance Asias Bond Markets 1 Fixed Income Asia Credit March 2019 In the Overview for Asia credit strategy,we explain why we think the stellar performance of the Asian credit market in the first two months of the year cannot continue uninterrupted for the remainder of 2019 without at least one bout of profit-taking.Theres no doubt that investors were reassured by signals from the US Federal Reserve that monetary policy will be held steady for an extended period.However,we think a number of uncertainties,led by the risk of higher US or China interest rates and unresolved trade talk issues,could rattle sentiment.Translating the latest pluses and minuses into numbers,we revise our forecasts for the benchmark iBoxx ADBI and AHBI-corp spreads to 185bp and 580bp,respectively,by end 1H19(from 210bp and 700bp),and 190bp and 590bp by the end of the year(from 200bp and 680bp).In Credit Review,the positive momentum for Asian credits continued for a second month but at a slightly slower pace.The average spreads of the ADBI and AHBI-Corp indices tightened another 9bp and 44bp,respectively,to 175bp and 586bp.They have returned to the levels seen back in the summer of 2018,marking a full recovery from the correction in 4Q18.In total returns1,ADBI and AHBI-Corp posted gains of 0.8%and 1.6%in February,respectively,and 2.6%and 5.3%in the first two months of 2019.The favourable sentiment has been supported by signs that US interest rates will not rise in the near future and easing tensions between the US and China.The primary market stayed in centre stage,bringing in another USD23.8bn of new USD bonds during the month.Total supply year-to-date has risen to USD53.6bn,12%higher than the same time last year.However,the three international rating agencies maintained their relatively dim view on Asian corporates.The rating actions have leaned to the negative side in the past two months.Separately,Qinghai Provincial Investment declared that a cross-default event was triggered due to a coupon payment delay on its 2020 bonds.Hong Kong takes the spotlight in the sovereign section this month,with the government delivering its budget for FY2019-20.There are near-term headwinds for the export sector and possible further modest monetary tightening could hurt domestic activities.As a result,the government projects a smaller fiscal surplus from a year ago.Having said that,the authorities continue to spend for the future with regards to social programmes and opportunities related to greater integration with Chinese cities close to Hong Kong.Despite the markets growing concern about Chinas debt situation,the USD China LGFV bond space grew 4%in 2018,to USD43bn.Now that the first high-yield rated LGFV USD bond to mature in 2019 has been repaid in full(USD300m NHLHK19,due on 11 January 2019),we believe re-pricing activities among weaker high-yield names should decline considerably.Therefore,we adopt a more neutral stance towards the space,believing that the risk of offshore USD bond defaults has abated.1 Total returns defined as sum of capital returns and accrual returns in USD.Editorial THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE“PRC”)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Fixed Income Asia Credit March 2019 2 Credit investors attention has shifted from discussions about USD HY bond defaults a few months ago to going down the credit curve for yield enhancement in 1Q19.The view that the default risks of China property HY bonds might be overstated has now become market consensus.Despite our positive stance on China property HY,we have underestimated the magnitude of spread compression year-to-date.Taking into account the pick-up in investor demand and developers being able to issue longer-dated bonds at manageable cost,as well as the wall of USD bond maturity from 2020 and onwards,we now expect USD38-40bn of China property HY bond issuance in 2019e,up from our previous forecast of USD8-10bn.This would mean a third consecutive year of record issuance,translating into USD18-20bn of gross supply for the rest of 2019.Given improved funding dynamics in both the onshore and offshore bond markets,we are more comfortable with high-beta China property developers.To be specific,we have buy trading calls on China Fortune Lands CHFOTNs and Zhenro Properties ZHPRHKs.Among the benchmark names,our preferred picks remain Country Gardens COGARDs.With the US Fed near if not at the peak of its rate hike cycle,we also recommend investors extend duration on China property HY bonds via China Evergrandes EVERREs.3 Fixed Income Asia Credit March 2019 This page has been left blank intentionally Fixed Income Asia Credit March 2019 4 Editorial 1 Overview 5 Focus List 16 Credit Review 22 Top and bottom performers of the month 29 Sovereign Risk Analysis 31 Monthly Focus:Hong Kong SAR 32 Republic of Singapore 37 Socialist Republic of Vietnam 41 Credit Research 45 China Onshore Insights:Gauging the public sector deficit 46 China Property HY 63 Company News&Analysis 75 Financial Institutions 76 Corporates 90 Asian Economics Desk Reference 118 Asia Credit Coverage 122 Spread and Curve Charts 125 Appendix 133 HSBC Databank 134 Disclosure appendix 155 Disclaimer 164 Contents 5 Fixed Income Asia Credit March 2019 Introduction The Asian credit markets strong recovery continued for a second consecutive month from both a spread and total return performance perspective.By end-February,the iBoxx ADBI and AHBI-corp spreads stood at 175bp and 586bp,respectively,compared with a wide print of 211bp and 752bp,respectively,year-to-date(see Fig 1).Market participants rising confidence about adding risk to portfolios was underpinned by an interplay of constructive fundamental and technical factors over the month.On the external side,the Federal Reserve clearly signalled that monetary policy would be held steady for the foreseeable future in order to assess the full impact of past adjustments on the economy.The mixed US economic data suggesting some loss of momentum and inflation being well contained helped to solidify the belief among investors that the Federal Reserve would keep monetary policy steady for an extended period.Sentiment was also boosted by the US government averting another shutdown as well as the Chinese and US administrations signalling progress on trade talks ahead of the possible imposition of additional tariffs from the start of March.Finally,the US President had indicated that the implementation of further tariff hikes would be delayed as sufficient progress had been made during the negotiations in areas such as opening the Chinese domestic economy,rolling back state subsidies and the protection of foreign technologies.Overview Time to catch your breath We dont expect the strong recovery of the first two months of 2019 to continue uninterrupted for the rest of the year A number of uncertainties,led by the risk of higher US and Chinese term rates and unresolved trade talk issues,could rattle sentiment But we are still optimistic enough to revise our forecasts for iBoxx ADBI and AHBI-corp spreads to 190bp and 590bp by end-2019,respectively(previously 200bp and 680bp)Dilip Shahani Head of Global Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4520 Fig 1 Asia credit spreads recover from y-t-d wide prints Source:IHS Markit,HSBC 1301501701902102302507/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19+/-1 stdiBoxx ADBI2112161603003754505256006757501/157/151/167/161/177/171/187/181/19+/-1 stdiBoxx AHBI-Corp752606418 Fixed Income Asia Credit March 2019 6 From a regional aspect,we believe market participants were increasingly positioning for favourable policy support as domestic economic activities slowed in a number of countries.For instance,the Reserve Bank of India surprised the financial markets last month by lowering its key policy rate by 25bp to 6.25%and the central government also announced an expansionary fiscal stance for the year ahead.Likewise,China,Korea and Singapore are running positive fiscal positions to complement neutral to slightly accommodative monetary policies to support domestic economic activities.Technical considerations added a positive tailwind,causing Asian credit spreads to compress back to levels last seen in the early part of 4Q18.The primary issuance was muted in part due to the Chinese New Year holidays and general uncertainty about the future,resulting in issuers being cautious about leveraging up their balance sheets.At the same time,institutional investors were caught off guard by the strong rally in the Asian credit market from early January.So,in order to protect against under-performance versus benchmark indices,market participants have been actively participating in the primary market,given the poor secondary market liquidity.Hard to repeat We are doubtful that the Asian credit markets stellar performance of the first two months can be sustained from a total return or spread standpoint for the remaining 10 months of the year without at least one,if not two,bouts of profit-taking.In particular,the current credit spread levels for the investment grade(IG)space have become significantly less attractive than at the start of 2019.If anything,to us,there are parts of the Asian IG segment that look outright expensive from a risk-reward perspective.Meanwhile,the Asian high yield corporate(HY corp)sector still offers some value from a spread standpoint,but technical considerations could quite quickly reduce the level of optimism.Simply put,it could be nothing more complicated than unresolved fundamental and technical considerations having an impact on investor sentiment in the coming weeks.At the same time,however,we would view an Asian credit market pullback as an opportunity,especially the chance to add high yield corporate risk to portfolios given the still-attractive carry offered and the spaces generally short duration based on the iBoxx AHBI-corp.So,to reiterate our view,we believe investors should be primarily focused on accrual returns for the rest of 2019.There are quite a few unresolved fundamental and technical considerations that could impact sentiment,so Asian credit spreads could fluctuate in a volatile fashion around a fairly broad range which could dampen total return performance at any given moment.Fig 2 HY volatility has declined but stay alert if it falls below IG volatility Source:IHS Markit,HSBC 0%1%2%3%4%5%6%7%8%1/155/159/151/165/169/161/175/179/171/185/189/181/1930-day rolling volatility of total returniBoxx ADBIiBoxx AHBI-CorpHY volatility lower than IG 7 Fixed Income Asia Credit March 2019 Fig 2 shows the sharp drop-off in Asian credit markets volatility indicators,reflecting improving confidence about the operating conditions.But we would get nervous if the high-yield corporate volatility indicator slips below that of the investment grade.In our opinion,it would confirm a high degree of speculative activity and show that market participants are not getting paid from a risk-reward perspective to be invested in the investment grade space.Translating the latest pluses and minuses into numerical outputs,we revise the benchmark iBoxx ADBI and AHBI-corp spreads to 185bp and 580bp,respectively,by end-1H19(from 210bp and 700bp),and to 190bp and 590bp,respectively,by end-2019(from 200bp and 680bp)(see Fig 3).In particular,we think the negative impact of Asian credit spread leakage on the total return performance of the high yield corporate sector will be insignificant both in the first half and for the full year.We attribute this to the contribution of accumulative carry over the year and the sectors short duration of around 2.6 years protecting it against US Treasury market volatility.Fig 3 Credit spread leakage has limited negative impact on our FY19 return forecasts Source:IHS Markit,Bloomberg,HSBC estimates Here,its important to highlight that the total return of the IG sector is constrained by the Federal Reserve not relaxing monetary conditions during the year.Simply put,the risk-free returns of 2.53%for 1-year US Treasury bills or 1-year LIBOR at 2.88%are now deemed the absolute minimum total return requirement.Therefore,any investment grade product has to offer extra return given the added risks associated with issuer profile,duration and liquidity,as well as transaction costs(see Fig 4).The liquidity aspect is of special importance,given that last year,market conditions were on occasions nearly un-tradable,which had a profoundly negative impact on portfolio pricing.Fig 4 ADBI yield pick-up over LIBOR hit new lows Fig 5 US Fed balance sheet reduction still in progress,so is liquidity drainage Source:IHS Markit,Bloomberg,HSBC Source:Federal Reserve,CEIC,HSBC Forecast for Asia credit spreads and capital returns4-Mar-19End Jun 19fEnd Dec 19fiBoxx ADBI spread171185190iBoxx AHBI-Corp spread570580590UST 5Y2.53%2.80%2.35%UST 10Y2.72%2.80%2.50%YTD1H19Full year 19iBoxx ADBI total return2.5%2.0%6.2%-Price return1.7%-0.1%1.7%-Accrual return0.8%2.2%4.4%iBoxx AHBI-Corp total return5.7%7.6%13.0%-Price return4.5%3.9%5.5%-Accrual return1.2%3.5%7.1%01234561/131/141/151/161/171/181/19ADBI yield pick upADBI average yield1-year LIBOR%-600-500-400-300-200-100010/171/184/187/1810/181/19Feds planned run-off of securities holdingsFeds actual run-off of securities holdingsUSDbn Fixed Income Asia Credit March 2019 8 Besides this constraint,the Asia IG sector is also vulnerable to US Treasury yields backing up.HSBCs fixed income team expects this to take place from now until the end of 1H19.The Federal Reserve signalling a monetary policy pause has already resulted in the prices of risky US dollar financial instruments staging a strong recovery year-to-date.The ending of the central banks balance sheet reduction programme this year should further lift investor and corporate sentiment.But we would highlight that the Federal Reserves balance sheet reduction programme is behind plan,so liquidity drainage will continue to be a consideration until the programme is completed(see Fig 5).Knowing the completion date is the most important consideration from the financial markets perspective,because then the Federal Reserve will have the flexibility to move the policy rate in either direction without any constraints.Market participants are pricing