20220104-招银国际-Before_Sunrise,_Before_Sunset_and_After_Mid-night_13页_862kb

CMB International Asia High Yield Corps Outlook 2022 Summary

Core Content

This report outlines the performance and outlook for the Asia High Yield (HY) corporate bond market in 2022, with a focus on the Chinese property sector and other segments. The analysis is structured around the metaphor of "Before Sunrise, Before Sunset and After Mid-night," which reflects the market's varying stages of risk and opportunity.

Main Points

1. Asia HY Corps: Before Sunrise

• Performance in 2021: The Asian HY corps market underperformed, with a total return of -12.7%, the worst since 2008.
• Segment Divergence: Chinese HY property returned -37.2%, while other segments like Indonesia HY (5.2%) and India HY (7.4%) returned positively.
• Market Outlook: The market is expected to improve in 2022 after the sharp correction in 2021, but short-term volatility and challenges remain.
• Factors Affecting Performance:
  • "Flight to quality" sentiment
  • Technical demand for diversification and green/renewable energy bonds
  • Impact of Omicron variant and inflationary pressures

2. Chinese Industrial and South East Asia: Before Sunset

• Recommendation: Investors are advised to diversify into Chinese industrial and South East Asia (SEA) credits due to lower headline risk and recovery from the pandemic.
• Supporting Factors:
  • Higher commodity prices
  • Gradual recovery of operating performance
  • Stronger ESG-aligned investment opportunities in India's renewables sector

3. Chinese HY Property: After Mid-night

• Performance and Outlook:
  • The Chinese property sector is now at the stage of "After Mid-night," not "Before Mid-night," following the defaults of Evergrande and Kaisa.
  • A significant portion of outstanding USD bonds (c50%) are trading below 80, and c30% below 50.
  • The market has built in a cushion for downside risk.
• Recommendations:
  • Conservative Investors: Focus on front-end bonds of quasi SOEs, BB-rated, or those with recent access to capital markets for carry.
  • Aggressive Investors: Target bonds trading at 50 or below and credits with manageable USD bond maturities in 1H22, with a preference for longer-tenor bonds.

Key Information

Bond Issuance Trends

• Gross Issuance (2021): USD344.9bn for Asia HY (excluding Japan and Australia), up 1% from 2020.
• Net Issuance (2021): Increased to USD138bn, up 11% from USD125bn in 2020.
• Chinese Property Issuance: Fell 25% year-on-year to cUSD40bn, reflecting a truncated new issue window.
• Overall HY Issuance: Continued to trend downward across the region.

Maturity Profile

• The Chinese property sector faces significant maturities in 1Q22 and 2Q22, with USD13bn and USD19bn respectively.
• These maturities, along with onshore bond maturities, may lead to increased volatility and liquidity challenges.

Default Rate

• The default rate of Asian HY corps rose to c15% in 2021 from c4% in 2020 due to the defaults of Evergrande and Kaisa.
• The report estimates the default rate to be in the range of 8-10% for 2022, as BB-rated and selected B-rated issuers may regain access to USD bond markets.

Recommended Bonds

• For Conservative Investors:

  • CHINSC'22 and 23s
  • COGARD'22s and '23
  • CSCHCNs
  • DALWAN'22s and '23s
  • FUTLAN'22 and '23
  • FTLNHD'22s and '23s
  • GRNLHK'22
  • HPDLF 6.8% '23
  • LOGPH 7.5% '22 and '23s
  • PWRLNG'22s and 23

• For Aggressive Investors:

  • JIAYUA 11.375% '22 and 23s
  • JINKE'24
  • REDPRO 11% '22 and '23
  • REDSUN'23s

Conclusion

The Asian HY corps market is at a critical juncture in 2022, with the Chinese property sector leading the challenges. While the overall market is expected to improve, investors must remain cautious of near-term risks such as maturities, rating actions, and macroeconomic uncertainties. The report suggests that diversification into industrial and SEA credits may offer more stability, while aggressive investors can target undervalued bonds with potential upside if sentiment improves.