Last year was pretty intense for Asia Credit with regulatory change gripping China, affecting education and technology, and an abrupt volte-face in the ability of Chinese property companies to access capital.
2022 started positively today with spreads around 3bps tighter. Despite holidays in China, Japan and UK there was good demand from real money out to 5 years in quality names. The 10yr was more mixed. High yield bonds ignored the fall in property stocks this morning, which were down as much 10%. following a trading suspension for Evergrande on a local media report that the company has been ordered to tear down apartment blocks in a development in Hainan province. .Property bonds were up as much as 2pts, led by Shimao and Sunac. Amidst a positive start for HK names this morning the Airport Authority Hong Kong, wholly owned by HK government and rated AA+, issued a mandate for a multi-tranche 144a/REG S deal.
“Beware the Ides of March”.. Looking deeper into 2022 Nick Ferres, CIO Vantage Point AM, points out that the global economy’s recovery from the pandemic lows in 2020 through 2021 coincided with an acceleration in growth and profits and was supported by QE, credit easing, zero rates and expansionary fiscal policy. The opposite is true this year. QE will end in March and policy rates are likely to rise 3 or 4 times. Equity returns should remain positive in the months leading up to and following the first Fed rate hike and will be impacted when tighter policy flattens or inverts the yield curve.
Best wishes for the New Year from all of us at Conduit Group.