Remain constructive on Asia credit, but stay cautious until rates and sentiment settle

Asia's economy is in a different position than that of the US and Europe. While inflation in developed market is driven by services, Asia's prices are still led by goods. BEA Union Investment believes there is still sufficient slack in Asia to absorb the additional demand from China led reopening without propping up consumer prices. But we believe the PBoC will stay vigilant towards reopening-induced inflation as the central bank's governor Yi Gang was one of the first to sound the alarm. We remain constructive on Asia credit.

At a glance: Potentials in Asian bonds
High yield property bonds
South Korea
Investment-grade bonds
China High yield property, industrial bonds

Following the collapse of Silicon Valley Bank, investor confidence is still week and market volatility will continue. US treasury yields fell and the spread of Asian high-yields widening more than that of its investment-grade peers as investors shifted into risk off mode. The latest development underscored the importance of remaining flexible to fine tune allocation between high-yield and investment-grade papers, given investors confidence are still on shaky grounds, prompting market volatility.

China may see V-shaped rebound; still favour property bonds but fine tuned portfolio and stay alert

After the abrupt U-turn of Covid, property and internet policies, the Chinese economy is recovering sharply and we believe a V-shaped rebound is possible. Apart from recovery in traveling and entertainment, improvement can also be seen across consumer spending, industrial output and property markets. Retail sales jumped 3.5% in January and February from a year earlier, while industrial output registered a healthy rebound of 2.4%, thanks to increasing infrastructure spending.

We remain optimistic towards China's real estate sector. More builders managed to obtain guarantee to issue medium-term notes in addition to onshore bank strategic cooperation as well as offshore loan disbursement. News that some privately-owned enterprise also snapped up land bank implied healthy liquidity in the sector. Continuous news on funding support could keep the buoyant market sentiment. Housing demand is expected to pick up on the back of more favourable measures, such as the relaxation of home purchase restrictions and reduction of down payment. We continue to see opportunities in Chinese high-yield property. We are also keeping an eye out for potentials in Macau gaming bonds as well as Chinese industrial bonds, as positive impact from reopening and property policies takes time to further filter through.