Amareos

Ryan Shea

Thematic (Sector/Industry)

On the face of it the Indian economy is in good shape – economic growth is rebounding, inflation rates are converging to the central bank’s target range and the stock market is edging back to the recent highs seen in late January before global equity markets succumbed to a bout of anxiety-driven profit-taking.However, as is often the case, looks can be deceiving. When we examine the recent evolution of crowd-sourced sentiments in India not everything is as rosy as the official data seem to…

On the face of it the Indian economy is in good shape – economic growth is rebounding, inflation rates are converging to the central bank’s target range and the stock market is edging back to the recent highs seen in late January before global equity markets succumbed to a bout of anxiety-driven profit-taking.However, as is often the case, looks can be deceiving. When we examine the recent evolution of crowd-sourced sentiments in India not everything is as rosy as the official data seem to…

The Market Sentimentalist - Indian Collywobbles

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

<div>Moody's 24-May downgrade of China's local currency and foreign currency senior unsecured debt rating to A1 (from Aa3) confirms what we wrote back on 1-May that China's economic improvement will not be fast enough to outpace its debt problems. We believe Moody's downgrade is the first of a few more downgrades for China (including S&amp;P to react on its negative outlook and follow Moody's to downgrade China's credit ratings in the near term). Credit ratings of Chinese state-owned enterprises are supported by an implicit support by the Chinese government and, therefore, all deserve a one-notch downgrade, in our view. This wholesale downgrade event will likely cause a repricing event for Chinese credits, as a result.Rating downgrade risk poses asymmetric downside risk for Chinese-related assets, including USD bonds issued by Chinese issuers. Rising market conviction on China's potential debt detonation will quicken the capital outflow and worsen the situation, in our view. We maintain our neutral recommendation on China's USD bond universe as we believe the worst case scenario for China will be a "muddle-through" case where its real GDP growth will be suppressed for a long time (similar to Japan's lost decade). Any sell-off on rating downgrades is always a headline risk removal and, therefore, exposes value for credits that are more closely-related and/or more economically-important to the Chinese government. Credit selections on Chinese-related bonds therefore remain more crucial than ever.</div>

Moody's 24-May downgrade of China's local currency and foreign currency senior unsecured debt rating to A1 (from Aa3) confirms what we wrote back on 1-May that China's economic improvement will not be fast enough to outpace its debt problems. We believe Moody's downgrade is the first of a few more downgrades for China (including S&amp;P to react on its negative outlook and follow Moody's to downgrade China's credit ratings in the near term). Credit ratings of Chinese state-owned enterprises are supported by an implicit support by the Chinese government and, therefore, all deserve a one-notch downgrade, in our view. This wholesale downgrade event will likely cause a repricing event for Chinese credits, as a result.Rating downgrade risk poses asymmetric downside risk for Chinese-related assets, including USD bonds issued by Chinese issuers. Rising market conviction on China's potential debt detonation will quicken the capital outflow and worsen the situation, in our view. We maintain our neutral recommendation on China's USD bond universe as we believe the worst case scenario for China will be a "muddle-through" case where its real GDP growth will be suppressed for a long time (similar to Japan's lost decade). Any sell-off on rating downgrades is always a headline risk removal and, therefore, exposes value for credits that are more closely-related and/or more economically-important to the Chinese government. Credit selections on Chinese-related bonds therefore remain more crucial than ever.

Asian Credit Monitor: Moody's Downgrade on China Is the First Domino to Fall

Credit

<div>Trump's rhetoric and rising political risk could increase market volatility which should sustain fund flow into bonds.We turn underweight on Asian USD bonds and recommend an active bond trading strategy through the primary market, credit selection, and a buy-on-dip strategy in order to gradually build up a spread premium to cushion against rising rates. A strong performance of Asian USD bonds since the beginning of this year limits prospects for further spread tightening, in our view. We also see Asian USD supply overhang and rising defaults in China as two major headline risks.On the other hand, global reflation trade and China's improving recent macro data leads us to believe bond funds will switch more allocation to bonds denominated in currencies (RMB and AUD), previously affected by a commodity price decline. As such, we overweight Asian local currency bonds.  </div>We inaugurated Bondcritic's first-ever issue on SmartKarma with our Asia ex-Japan bond strategy. Yes, we have been talking about rate hikes, President Trump, 2017 as a key election year, and China's twice-a-decade national congress.Global reflation trade is positive for emerging markets as a whole, in our view. However, we believe the Trump effect could increase market volatility and skew fund flow into bonds. Though we believe Asian local currency bonds will make a comeback, we believe selected Asian USD bonds remain good value in light of rising volatility. Here are what we predict (and what to do to benefit from those predictions):<ul><li>Currency: Global reflation trade has waned but leads us to believe local currencies, especially RMB and AUD, are on the verge of making a comeback against USD after USD rally since Trump's surprise victory last November. (Overweight Asian local currency versus USD bonds).</li><li>Rates: Rate hikes will be more gradual than most economists had thought. Key European elections and Trump-induced geopolitical risk could create greater-than-expected volatility, in our prediction. (Overweight bonds vs. equities).</li><li>New issues: Rate hikes motivate issuers to issue now rather than later in order to save on its funding cost. Supply overhang should lead to rising yield, though on a gradual manner. (Prefer primary to secondary markets)</li><li>Countries: Global reflation trade is positive for Asian economies. However, Trump' s rhetoric on trade restrictions could eventually hurt Asian countries with higher exports as % of GDP.  Rebounding commodity prices have been priced in and we believe domestic consumer spending and self-sufficiency means stable macro in the longer term (Overweight India ( also see <a href="https://www.smartkarma.com/profiles/674" target="_blank" data-smartkarma-citation="accounts:674">Das Capital Management and Advisors</a>) , Sri Lanka, and Indonesia as top 3 countries of risk for the USD bonds). We are neutral as China's improving macro is mitigated by lingering bad debt as rising bad debt.</li><li>Default: China's debt problem will not significantly improve, in our view, but improving macro data will lend China a temporary lifeline. Default and corporate governance irregularities, especially in China, will continue to resurface (Prefer credit selection/active bond strategy vs. passive bond strategy).</li></ul>

Trump's rhetoric and rising political risk could increase market volatility which should sustain fund flow into bonds.We turn underweight on Asian USD bonds and recommend an active bond trading strategy through the primary market, credit selection, and a buy-on-dip strategy in order to gradually build up a spread premium to cushion against rising rates. A strong performance of Asian USD bonds since the beginning of this year limits prospects for further spread tightening, in our view. We also see Asian USD supply overhang and rising defaults in China as two major headline risks.On the other hand, global reflation trade and China's improving recent macro data leads us to believe bond funds will switch more allocation to bonds denominated in currencies (RMB and AUD), previously affected by a commodity price decline. As such, we overweight Asian local currency bonds.  We inaugurated Bondcritic's first-ever issue on SmartKarma with our Asia ex-Japan bond strategy. Yes, we have been talking about rate hikes, President Trump, 2017 as a key election year, and China's twice-a-decade national congress.Global reflation trade is positive for emerging markets as a whole, in our view. However, we believe the Trump effect could increase market volatility and skew fund flow into bonds. Though we believe Asian local currency bonds will make a comeback, we believe selected Asian USD bonds remain good value in light of rising volatility. Here are what we predict (and what to do to benefit from those predictions):Currency: Global reflation trade has waned but leads us to believe local currencies, especially RMB and AUD, are on the verge of making a comeback against USD after USD rally since Trump's surprise victory last November. (Overweight Asian local currency versus USD bonds).Rates: Rate hikes will be more gradual than most economists had thought. Key European elections and Trump-induced geopolitical risk could create greater-than-expected volatility, in our prediction. (Overweight bonds vs. equities).New issues: Rate hikes motivate issuers to issue now rather than later in order to save on its funding cost. Supply overhang should lead to rising yield, though on a gradual manner. (Prefer primary to secondary markets)Countries: Global reflation trade is positive for Asian economies. However, Trump' s rhetoric on trade restrictions could eventually hurt Asian countries with higher exports as % of GDP.  Rebounding commodity prices have been priced in and we believe domestic consumer spending and self-sufficiency means stable macro in the longer term (Overweight India ( also see Das Capital Management and Advisors) , Sri Lanka, and Indonesia as top 3 countries of risk for the USD bonds). We are neutral as China's improving macro is mitigated by lingering bad debt as rising bad debt.Default: China's debt problem will not significantly improve, in our view, but improving macro data will lend China a temporary lifeline. Default and corporate governance irregularities, especially in China, will continue to resurface (Prefer credit selection/active bond strategy vs. passive bond strategy).

Asian Dollar Bond Monitor: The Trump Card

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

India Treasury (INDIA GOVT)

The Market Sentimentalist - Indian Collywobbles

On the face of it the Indian economy is in good shape – economic growth is rebounding, inflation rates are converging to the central bank’s target...

Amareos

Asian Credit Monitor: Moody's Downgrade on China Is the First Domino to Fall

Moody's 24-May downgrade of China's local currency and foreign currency senior unsecured debt rating to A1 (from Aa3) confirms what we wrote back...

Warut Promboon

Asian Dollar Bond Monitor: The Trump Card

Trump's rhetoric and rising political risk could increase market volatility which should sustain fund flow into bonds. We turn underweight on...

Warut Promboon

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)