Asian Credit Market Review

Market Commentary - as at November 2019

Risky assets including Asian credits have a positive month amid rising optimism that the US and China are edging closer to a phase 1 trade deal. Economic data around the world are showing some signs of stabilizing, further boosting sentiments. All these factors led to a rise in US treasuries yield which saw the 10 year yield rising 9 bps to 1.78% while JACI spreads tightened by 4bps to 264 bps. Total return for the JACI came in at 0.28% as spread tightening and coupon income more than offset the rise in treasury yields. Year-to-date return for the JACI now stands at 10.97%. By country, spread returns were mostly positive with Sri Lanka being the only outlier with a negative return on news that the new government led by President Gotabaya will seek to undo USD 1.1b deal to lease port to China.

Economic data around the world turned more encouraging in November. In the US, the second estimate of GDP growth for the third quarter was revised higher from 1.9% to 2.1%. Durable goods orders were also above expectations in the US while unemployment remained at historical low. Conditions appeared to stabilize in Asia too with manufacturing PMI in China, India and Vietnam all showing improvement.

While the global macro backdrop has improved, concerns remain in certain countries and sectors. Moody's Investors Service ("Moody's") has changed the outlook on the Government of India's ratings to negative from stable and affirmed the Baa2 foreign-currency and local currency long-term issuer ratings. Moody's decision to change the outlook to negative reflects increasing risks that economic growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody's had previously estimated, leading to a gradual rise in the debt burden from already high levels. Tsinghua Unigroup and Peking University Founder Group bonds continued to be under pressure throughout the month as investors raised concerns over their enormous debt pile and uncertainty over the strength of government support. The 2023 maturity bond for Tsinghua now trade at a yield of 10.8% while that for Peking Founders trade at above 22% yield.

Supply remained robust during the month of November with total of USD 29.5b issued, bringing year-to-date issuance to USD 271.5b. With still another month to go before the year ends, 2019 issuance has already topped the record reached in 2017. Also interesting to note, year to date Asia HY corporate issuance topped $100bn for the first time in a calendar year.

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