Asia seen as least creditworthy relative to their global peers

May 28, 2013 Leave a comment

‘Asia seen as least creditworthy relative to their global peers’

Published: 2013/05/28

BEIJING: Borrowers in Asia are seen as the least creditworthy relative to their global peers in almost a year on signs of faltering growth in China.

The Markit iTraxx Asia index of credit-default swaps traded as much as 20 basis points higher than the average of four others from around the world this month, the biggest premium since June, according to data provider CMA. As recently as March, Asian borrowers were seen as better credits than the rest of the world.

Confidence in Asia is being dented by slowing growth in the region’s biggest economy, where manufacturing is contracting for the first time in seven months. That contrasts with optimism about economic revival in the United States and tumbling sovereign bond yields in Europe. Investors soured on China’s outlook in a Bloomberg global poll this month, with the nation seen as offering the worst opportunities in the next year after the European Union.

“There are big questions over China’s ability to keep growing at its past rapid pace,” said Scott MacDonald, head of research at MC Asset Management Holdings LLC in Stamford, Connecticut, which has about US$600 million (RM1.81 billion) of assets.

“China’s manufacturing numbers indicate a slowdown more in line with recessional behaviour than growth, causing some alarm.”

The Asian benchmark of contracts on 40 borrowers outside Japan fell six basis points this year to 107 on Friday, the smallest decline among Markit Group indexes for the US, Europe, Australia and Japan.

Prices of swaps tied to Cnooc Ltd, China’s largest offshore energy explorer, rose 10 basis points this quarter to 87, the biggest increase among the members of the Asian risk gauge. Swaps on Chinese government debt rose six points to 80 points, the next largest gain, CMA data show.

Asia’s creditworthiness is increasingly important to global investors after buying a record amount of bonds sold by companies in the region.

Issuance of dollar-denominated debt outside Japan has totalled US$81.3 billion in 2013, already making this the second-busiest year in data going back to 1999 after 2012, data compiled by Bloomberg shows.

Chinese and Hong Kong borrowers sold more than half of those bonds, issuing US$43.7 billion since December 31, according to the data.

Chinese corporate borrowing will exceed that of US companies within the next two years, according to Standard & Poor’s, which forecast on May 14 that non-financial institutions from the world’s second-largest economy will need US$18 trillion of debt during the five years ending 2017. Bloomberg

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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