Asian credit: where are the investment opportunities?
Post-Covid recovery in the Greater China region is presenting opportunities in the internet platforms, Macau gaming, airports and retail-oriented companies. We also see opportunities in Indian renewables and infrastructure.
Key drivers of Asian credit so far in 2023
Credit markets have been on a rollercoaster ride since the start of 2023. Just as we thought the rebound in credit markets had legs to run, global banking stresses in March erased all spread tightening year-to-date and led to a re-think of the US Federal Reserve’s rate hike trajectory. While Asian credit spreads have widened in line with global volatility, the region has held up strongly, up almost 3.5% on a year-to date basis.
Globally, there are a number of issues keeping fixed income investors on edge: US debt ceiling concerns, US Federal Reserve’s rate hike uncertainties and US bank stresses.
However, against a backdrop of slowing global growth, Asia stands out as a bright spot and is positioned strongly relative to the global economic cycle. The region is poised to contribute to majority of the global growth this year, driven by tailwinds from China’s reopening story and firm economic outlook for major economies such as India and Indonesia.
Where are we seeing the most interesting Asian credit opportunities?
Mainland China has shown to be well on track in its post-Covid recovery, with Q1 2023 GDP coming notably above consensus at 4.5% year on year, largely boosted by travel-related consumption. A supportive policy stance also caps further downside risk to the Chinese economy. These developments are likely to benefit several segments in the Greater China region, such as internet platforms, Macau gaming, airports and retail-oriented companies.
Separately, we see several interesting credit stories in Indian renewables and infrastructure. Overall healthy macroeconomic outlook and robust domestic demand, along with a stable regulatory environment, help create a benign backdrop for these issuers to operate. These developments should help anchor credit fundamentals especially within investment grade, and support the outperformance of quality credits in the region.
Apart from the aforementioned markets, high quality Hong Kong SAR and Korea issuers also present ample opportunities for credit selection.
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