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Time to get in Asia Junk Bonds

Spreads on Asia dollar high-yield notes average 4.7%, after reaching a more than two-year high of 5.82% a month ago, according to a Bloomberg Barclays Index. 

BNP Paribas Asset in July added bonds for India and Indonesia high-yield energy companies, which are reporting robust operating profits and reducing leverage. The French fund manager joins others such as Goldman Sachs Group Inc., Nomura International (HK) Ltd. and JPMorgan Chase & Co. that have recently given Indonesian junk debt the thumbs up.

BNP Paribas Asset’s view on China can be summarised as follows:

  1. Among Chinese high-yield bonds, it is avoiding the industrial sector, where borrowers “face significant overcapacity” and higher default rates are likely.
  2. It underweight on China’s local government financing vehicles but has increased its exposure to state-owned enterprises involved in strategic industries.
  3. Demand from China’s investors for overseas debt has declined, and Chinese dollar-denominated notes are likely to see a “modest” performance this year. Such investors have been key buyers and helped to support valuations for China’s offshore bonds.

Reference:

Bloomberg, Denise Wee, 2018-08-10, “Get Stuck Into Asia Junk Bonds Now, Says BNP”

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