Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Thematic (Sector/Industry)

China Industrials / Thematic (Sector/Industry)

We revisited the Asian US Dollar bond universe, following <a href="https://www.smartkarma.com/insights/asian-dollar-bond-monitor-the-trump-card" target="_blank">our original ADBM (dated 24-April-2017)</a>. Asian USD bond spreads have staged a come-back in August on a flight to quality on rising geopolitical tension with North Korea. We note that the recent performance has not been symmetrical across all countries. We have witnessed outperformance for Indonesia's and India's USD credits, both of which we have recommended, and a lacklustre performance on China's USD bonds on supply overhang and investor concerns over China's debt debacles.In general, we expect investors to increase differentiation between China and ex-China bond universes. For the record, we believe the term "Asia" has been simply a convenient but wrong association to lump China, India, and Indonesia in one group in the first place. In our view, there are East Asia (excluding Mongolia), Southeast Asia (excluding the Philippines), the Greater Indian region, the Middle East, Central Asia (with Mongolia but excluding Georgia, Armenia, and Azerbaijan), and other unique countries such as Turkey and Iran. We intend to cover these regions separately and without applying the same stereotype over all regions.China's USD bond spread should continue to widen in 2017 as we do not expect the debt situation to improve (<a href="https://www.smartkarma.com/insights/asian-credit-monitor-moody-s-downgrade-on-china-is-the-first-domino-to-fall" target="_blank">See our Asian Credit Monitor on China debt debacles </a>and our SmartKarma colleague (<a href="https://www.smartkarma.com/profiles/612" target="_blank">Prasenjit K. Basu)'s </a><a href="https://www.smartkarma.com/insights/china-soaring-credit-keeps-the-economy-afloat-precariously" target="_blank">recent research on China</a>). Rising debt issuance in China also raises another concern of a currency mismatch in issuers with RMB revenues and rising USD debt. On the other hand, improving macro fundamentals and, as in the case of India, an economic resilience to a global economic shock should continue to support the bond spread.Despite our view of limited downside on the US dollar value against major currencies, we maintain our Underweight recommendation on Asia ex-Japan US dollar bond universe. For investors with mandates to stay in China's USD bonds, we recommend participate in the primary market rather chasing yields in the secondary market.

We revisited the Asian US Dollar bond universe, following our original ADBM (dated 24-April-2017). Asian USD bond spreads have staged a come-back in August on a flight to quality on rising geopolitical tension with North Korea. We note that the recent performance has not been symmetrical across all countries. We have witnessed outperformance for Indonesia's and India's USD credits, both of which we have recommended, and a lacklustre performance on China's USD bonds on supply overhang and investor concerns over China's debt debacles.In general, we expect investors to increase differentiation between China and ex-China bond universes. For the record, we believe the term "Asia" has been simply a convenient but wrong association to lump China, India, and Indonesia in one group in the first place. In our view, there are East Asia (excluding Mongolia), Southeast Asia (excluding the Philippines), the Greater Indian region, the Middle East, Central Asia (with Mongolia but excluding Georgia, Armenia, and Azerbaijan), and other unique countries such as Turkey and Iran. We intend to cover these regions separately and without applying the same stereotype over all regions.China's USD bond spread should continue to widen in 2017 as we do not expect the debt situation to improve (See our Asian Credit Monitor on China debt debacles and our SmartKarma colleague (Prasenjit K. Basu)'s recent research on China). Rising debt issuance in China also raises another concern of a currency mismatch in issuers with RMB revenues and rising USD debt. On the other hand, improving macro fundamentals and, as in the case of India, an economic resilience to a global economic shock should continue to support the bond spread.Despite our view of limited downside on the US dollar value against major currencies, we maintain our Underweight recommendation on Asia ex-Japan US dollar bond universe. For investors with mandates to stay in China's USD bonds, we recommend participate in the primary market rather chasing yields in the secondary market.

Asian Dollar Bond Monitor: New Normal or Late-Summer Night Dream