www.research.hsbc.comDisclosures&Disclaimer:ThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.PlayinterviewwithReksNgFixedIncomeAsiaCreditJuly2019By:HSBCAsiacreditresearchteamTheVIEWWerevisitChinaHYindustrialsassupplydiminishesandvalueemerges.Withinthesector,wearebullishonHYoilandneutralonHYconsumer.AlsoinsideForAsiacreditstrategy,webelieveinvestorsshouldusetheongoingrallyasanopportunitytoreducerisk.PostcardfromourinvestortourinChinasuggestedahealthypropertymarket.Asia’sBondMarkets1FixedIncome●AsiaCreditJuly2019Tomany,itmightbeaneasycalltounderweightChinahigh-yield(HY)industrialsonasectorbasis,citingthehighdefaultrate,weakfinancingcapabilityversuspropertycounterparts,anddepressedmarginsstemmingfromfiercecompetition.Theweaktradingliquidityoftenmakesthingsworse–it’snotuncommontoseealargeintradayswingevenondayswithlimitedrelevantindustrynews.However,it’sunfairtojudgeeveryissueronthisbasis.Somenamesinthissectordisplayqualitiestraditionallyfavouredbyfixedincomeinvestors,suchasfastgrowth,cleardeleveragingefforts,valuablefixedassets,andindustryleadership.Wethinksomeofthesequalitiesareunderappreciatedasaresultofthedefaultsinthesector.Thismightbeablessingindisguise.IntheHYindustrialsector,thereiscurrentlyacleardifferentiationbetweenthestrongercreditswhichcanissuerepeatedly,andtheweakeroneswhichareheavilypenalizedbythemarketafterinitialpricing.Thistrendisevidentinthegrossissuancenumber,withmostofthey-t-dissuancecomingfromrepeatissuersratherthandebutissues.Wethinkthereducedsupplyisanotherreasontorevisitthesectorasvalueemerges,especiallyasitoffersopportunitiestodiversify,especiallyforportfoliosthataredominatedbyHYproperty.FromaCreditStrategyperspective,webelievetheongoingAsiacreditmarketralliesshouldbeusedasanopportunityforinvestorstoreduceriskintheirportfolios.Basedonratings,iBoxxADBIcreditqualityhasbeenonalessfavourabletrajectory,withthedeteriorationacceleratingfrom2018onwards.Fromthefundam...
