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Asia high yield strategy: Resilience amidst volatility

Alfred Mui, Head of Asian Credit, discusses his investment views for the HSBC Asia High Yield strategy, in light of the coronavirus situation
28 February 2020
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    Key takeaways:

    • The HSBC Asia High Yield Bond strategy has had positive performance year-to-date despite volatility in the markets. With our high yield strategy having undergone various risk-off and risk-on scenarios over the years, we continue to showcase our ability to successfully navigate market cycles
    • The Chinese government has reiterated its preference for stability in 2020; this stance combined with monetary policy support measures should allow for only a gradual rise in defaults and repayment stress amongst Chinese SOEs and the industrial sector. Overall, we can expect defaults in 2020 to pick up to about 2.0 per cent of the Asia USD high yield market (versus 1.6 per cent in 2019)
    • Most of the China developers we own in the HSBC Asia High Yield strategy are national-level, large players with diversified land banks (with limited city concentration risk) and solid sales execution, and we believe that they are equipped to weather the volatility. Given the regulatory restrictions around offshore issuance for Chinese property developers, the sector should see strong technicals by way of limited supply and strong demand for the bonds
    • Valuations for the Asia high yield bond market continues to be attractive, with yields trading at a premium over most other high yield markets. The asset class continues to offer a buffer against any downside given its yield cushion

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