www.research.hsbc.comDisclosures&Disclaimer:ThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.PlayinterviewwithDevendranMahendranFixedIncomeAsiaCreditBy:HSBCAsiacreditresearchteamApril2019TheVIEWWebelievetheAsiacreditmarketsarevulnerabletoapotentialcorrectionin2Q19,andsuggestcuttingexposuretosovereignswhileincreasingfinancialstoreducevolatilityAlsoinsideWekeepourcautiouslypositionedspreadforecastsunchangedinthefaceofslow-motionrisksaheadAsiacreditsrecordedthehighest-everquarterlyreturnin1Q19.Primarysupplyremainsrobustwithadiversifiedmixofissuers,despitethesofteconomicoutlookAsia’sBondMarkets1FixedIncome●AsiaCreditApril2019Inthismonth’sOverview,wethinktheAsiacreditmarketsarepoisedtocorrectgiventherichvaluationsofcertainsubsectors,andthatthereisa“slow-motionrisktospreads”.TheFed’sdovishtiltandrecentsoftmacrodatasuggeststhatallisnotwellintheworld.SomuchsothatwehaveseendownwardrevisionstoglobalgrowthandUSTyieldforecasts.Westudiedthelasttwomajorsell-offsincreditmarkets(theybottomedinFebruary2016andJanuary2019),whichshowedthatcertainsubsectorstendtobedefensiveandothersmorevulnerabletospreadwideningthanothers.Ourfindingssuggestthatthefinancialsectorisresilient,whilethesovereignspacecanbevulnerabletobroaderEMsell-offs.WhiletheChinapropertysectorwasvulnerableinthemostrecentsell-off,itwastiedtodomesticpolicyconcernsandrefinancingissues.Hence,itisnotagiventhatChina’spropertysectorwillunderperforminabroadsell-offasvaluationsarestillwithinthenormsofpastaverages.Giventhepossibilityofacorrection,wesuggestthatinvestorsrepositionportfoliostoreduceexposuretosovereignsandincreaseexposuretofinancials.Counter-intuitively,weremaincomfortablewithChinapropertyastherearenonear-termfundamentalconcernsanditisasectorthatisunder-representedinglobalEMportfolios.CreditReview:WesawAsiacreditswithrecordreturnsin1Q19,bringingthehighesteverquarterlytotalreturns1of4.64%forADBIand8.46%forAHBI-Corp.Averagespreadsoft...
