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Barclays Capital: Credit Research: Asia-Pac Credit Insights - finely balanced
Date: 27 Apr 2011
Language: English
Format: PDF
Pages: 66
Table of Contents
Credit Strategy: Finely balanced............................................................................................. 1
A benign economic backdrop in Asia, continued momentum in the global economic
recovery, strong corporate fundamentals and contained event risk are supportive of
valuations. On the other hand, a number of factors offset these positives: high levels of
bond supply and the effects of tighter credit conditions in China. We believe that the nearterm
outlook for Asian credit is finely balanced, with range trading being our base case.
Summary recommendations................................................................................................. 10
High Grade Corporates: Supply weighs on secondary spreads...................................... 12
Prospects of increasing new supply, particularly from corporates in China and Hong Kong,
are weighing on valuations at a time when credit profiles are unlikely to improve
significantly. As such, our key high grade picks are driven more by wide valuation and carry
relative to credit profiles, rather than by expected improvements in credit profiles.
High Yield Corporates: A tale of two sectors...................................................................... 26
Chinese and Indonesian corporate bonds have seen contrasting performances year-todate
on technicals with the former underperforming and the latter outperforming the
overall Asian HY market. Within the Chinese property space, we prefer the BB developers
and we also recommend an Overweight stance on Indonesian coal bonds.
Financial Institutions: No easy pickings .............................................................................. 42
We have a stable outlook for Asian banks’ fundamentals in 2011 given the healthy
economic growth expected across the region. However, Indian banks will have to
grapple with macro headwinds arising from high inflation and tight banking system
liquidity. Over the medium term, asset quality risks from overseas expansion by Hong
Kong and Singaporean banks will increase, in our opinion. We think that noise
regarding M&A in Malaysia is also set to increase this year.
Issuer index, A-Z...................................................................................................................... 59
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