Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Goldilocks may morph into a market wolf if the US Senate changes leadership while 100 mask wearing days haunts of Jimmy Carter-like sentiment. This is not priced in and these changes may limit the annual January bounce.Also, there is a risk that the market has gotten ahead of itself as bank management’s loss expectations are yet to be tested. US bank earnings announcements at mid-month will be watched for signs of management concern as well as dividend expectations. January’s top 10 performers could have distinctively lower risk profiles.Idiosyncratic plus vaccine impact expectations drove December performance. As such, <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia (23 HK)</a> and Thai Bank Additional Tier 1 (AT1) securities outperformed in Asia, albeit for differing reasons.While Thai bank bonds rode the wave of enthusiasm following announcements of Coronavirus vaccines, Bank of East Asia’s notes gained on credit technical reasons. Similarly, <a href="https://www.smartkarma.com/entities/vietnam-prosperity-jsc-bank" target="_blank" data-smartkarma-citation="entities:26914:1" rel="noopener">Vietnam Prosperity's (VPB VN)</a> bond rose on vaccine developments while Ardshindbank and <a href="https://www.smartkarma.com/entities/china-minsheng-banking-a" target="_blank" data-smartkarma-citation="entities:655:1" rel="noopener">China Minsheng  (600016 CH)</a> gained as their respective credit situations improved.Bank of East Asia’s decision to retire its December callable Additional Tier 1 bonds woke the market to our insight several months earlier that this debt is inefficient capital. Please see <a href="https://www.smartkarma.com/insights/bank-of-east-asia-buy-the-inefficient-capital-securities" target="_blank" data-smartkarma-citation="insights:42753" rel="noopener">Buy the Inefficient Capital Securities</a> and <a href="https://www.smartkarma.com/insights/bank-of-east-asia-move-to-overweight-the-capital-inefficient-securities-from-buy" target="_blank" data-smartkarma-citation="insights:45652" rel="noopener">Move to Overweight the Capital Inefficient Securities from Buy</a> for more details.<a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">YES Bank (YES IN)</a> led spread widening. Having hit par at one point during December, investors followed our recommendation to lighten exposure. Please see: <a href="https://www.smartkarma.com/insights/yes-bank-par-is-plenty-move-to-underweight" target="_blank" data-smartkarma-citation="insights:46120" rel="noopener">Par Is Plenty- Move to Underweight</a> for more details.In a positive sign from a vaccine momentum perspective, the positive spread movement amongst Thailand’s AT1 bonds continued throughout December. Nonetheless, we see this as a cognitive dissonance trade which ignores vaccine distribution and time extension risks. Rolling lockdowns do not improve consumer confidence and lower Q1 economic output in Europe and the US may ensue. This could impact Asia asset values and our preference would be to fade the rally in Thai bank AT1.

Goldilocks may morph into a market wolf if the US Senate changes leadership while 100 mask wearing days haunts of Jimmy Carter-like sentiment. This is not priced in and these changes may limit the annual January bounce.Also, there is a risk that the market has gotten ahead of itself as bank management’s loss expectations are yet to be tested. US bank earnings announcements at mid-month will be watched for signs of management concern as well as dividend expectations. January’s top 10 performers could have distinctively lower risk profiles.Idiosyncratic plus vaccine impact expectations drove December performance. As such, Bank of East Asia (23 HK) and Thai Bank Additional Tier 1 (AT1) securities outperformed in Asia, albeit for differing reasons.While Thai bank bonds rode the wave of enthusiasm following announcements of Coronavirus vaccines, Bank of East Asia’s notes gained on credit technical reasons. Similarly, Vietnam Prosperity's (VPB VN) bond rose on vaccine developments while Ardshindbank and China Minsheng  (600016 CH) gained as their respective credit situations improved.Bank of East Asia’s decision to retire its December callable Additional Tier 1 bonds woke the market to our insight several months earlier that this debt is inefficient capital. Please see Buy the Inefficient Capital Securities and Move to Overweight the Capital Inefficient Securities from Buy for more details.YES Bank (YES IN) led spread widening. Having hit par at one point during December, investors followed our recommendation to lighten exposure. Please see: Par Is Plenty- Move to Underweight for more details.In a positive sign from a vaccine momentum perspective, the positive spread movement amongst Thailand’s AT1 bonds continued throughout December. Nonetheless, we see this as a cognitive dissonance trade which ignores vaccine distribution and time extension risks. Rolling lockdowns do not improve consumer confidence and lower Q1 economic output in Europe and the US may ensue. This could impact Asia asset values and our preference would be to fade the rally in Thai bank AT1.

Bank Credit Compass: Regime Change May Limit the Annual January Bounce

Asean-focused. Ex-Head of Thai Research

Athaporn Arayasantiparb, CFA

Asean (Thailand) Focused Independent Research

M Corp Review

M Corp is led by Athaporn Arayasantiparb who served as Head of Research for UOB and ANZ in Thailand and was an award-winning telecoms analyst at UBS in 2010 (AsiaMoney Thailand category) and Regional Strategist for DMG in Singapore. Prior to that, he also served as Kasikornbank credit analyst and scholar. He has a total work experience of 17 years, of which 14 were in research and 4 in research management roles. He started his career as an engineer for PTT and currently manages family investments. He holds an MBA from Stern (NYU) and CFA Charter since 2006. Apart from IPO Radar, which focuses on future listings, MCorp Review also provides six on-going thematic series ranked by frequency in descending order, namely: 1) Silicon Stories (technology) 2) Sathorn Series (financial services) 3) Thai-Coons (billionaire origin stories) 4) Reality Check (data-driven, investigative) 5) Thai Media Spotlight; and 6) Thai Macro Watch (global market drivers).

Equity Bottom-Up

Five interesting news/trends we detected recently include:<ul>
<li>
Pa Daeng sells 7 power plants to BAFS for Bt1.7bn but then turns around to buy two hotels worth Bt5-10bn. Looks like they are moving from the defensive to recovery theme.</li>
<li>
GPSC, PTT's power arm and acquirer of Glow, announces it will increase the Group's renewable footprint from 11% to 30% in 5 years at a cost of Bt70bn.</li>
<li>
JKN diversifies outside media and targets almost doubling since 2019 to Bt3bn in 2021. Hospitals, hair clinic, drinks....nothing seems off-limits.</li>
<li>
CAT Telecom is currently looking to lease towers from private operators, poising AIS against the allies (True Corp and DTAC). We believe the allies have a slight leg up in this face-off, with DTAC enjoying the highest 4% upside.</li>
<li>
Market movements. Call this a snippet within a snippet for lack of a better word. We summarize some of the smaller movements on insider selling and IPO implications.</li>
</ul>

Five interesting news/trends we detected recently include:

Pa Daeng sells 7 power plants to BAFS for Bt1.7bn but then turns around to buy two hotels worth Bt5-10bn. Looks like they are moving from the defensive to recovery theme.

GPSC, PTT's power arm and acquirer of Glow, announces it will increase the Group's renewable footprint from 11% to 30% in 5 years at a cost of Bt70bn.

JKN diversifies outside media and targets almost doubling since 2019 to Bt3bn in 2021. Hospitals, hair clinic, drinks....nothing seems off-limits.

CAT Telecom is currently looking to lease towers from private operators, poising AIS against the allies (True Corp and DTAC). We believe the allies have a slight leg up in this face-off, with DTAC enjoying the highest 4% upside.

Market movements. Call this a snippet within a snippet for lack of a better word. We summarize some of the smaller movements on insider selling and IPO implications.


Snippets #47: Pa Daeng's Trades, Battle for CAT's 5G Network

Three macro events this week should drive near term returns. The outcomes may appear fiendish to over-extended investors, much in the same way that Krampus, the mythical counterparty to St. Nicholas, taunts naughty children.The events include the outcome of the Fed’s Federal Open Market Committee meeting, the final week for the US Congress to agree addition US federal stimulus bill this year and the almost final week towards a Brexit deal. Resulting US dollar strength could snuff out the recent rally in Asia and broader EM US$-denominated credit.Expectations that the Fed could alter its bond purchase program at its upcoming meeting has limited bearish sentiment in the long end of the Treasury market. Look for a decision to extend the weighted average maturity of its bond purchases. The failure of the Fed to deliver could embolden the market to break a psychological 1% barrier on the 10-year Treasury bond. This would be beneficial to bank securities over the short term, especially if it occurs in tandem with continued bear steepening from the short end of the curve. However, this would raise the real effective rate and could be dollar negative. Asia and EM securities could react.Even if the Fed delivers what one-half of the market expects by altering its bond buying program, there are other extenuating circumstances that could result in a flight to quality, such as renewed lockdowns, the lack of a federal fiscal package and / or Brexit agreement. In a reversal of the recent trend of bad news = buy, the lack of federal stimulus would lower risk sentiment. We remain unconvinced that an actual agreement is the underlying goal of these negotiations. Control of the US Senate is at stake and the political posturing plays right into that race. Failure to reach an agreement would move all eyes to the Senate run-off races in January. Please see out last weekly, <a href="https://www.smartkarma.com/insights/bank-credit-weekly-new-equation-is-bad-news-buy" target="_blank" data-smartkarma-citation="insights:46058" rel="noopener">The New Equation is Bad News = Buy</a>, for more details. The continuing saga of Brexit negotiations may also change investor risk preferences. As we approach a no deal deadline, signaling to prepare for a ‘hard Brexit’ or ‘Australian-option’ trade agreement, depending on your Brexit stance, is already impacting rates. The lack of an agreement could revive flight to quality trades as we cross into the new year.Against this backdrop, Asia High Yield securities continued to outperform US HY, as in the last few weeks. Caa-rated US credits softened slightly, although by less than Ba and B rated securities. Risk remains over-bid and the consensus trade on rates, the dollar and trade is disconcerting. Regarding over-bid risk, please see <a href="https://www.smartkarma.com/insights/yes-bank-par-is-plenty-move-to-underweight" target="_blank" data-smartkarma-citation="insights:46120" rel="noopener">YES Bank: Par is Plenty- Move to Underweight</a>. As regards a trade to counter the over-consensus market, please see <a href="https://www.smartkarma.com/insights/societe-generale-at1-resolution-or-resilience-in-the-retail-restructuring-take-shorter-duration" target="_blank" data-smartkarma-citation="insights:46244" rel="noopener">Société Générale AT1: Resolution or Resilience in the Retail Restructuring? Take Shorter Duration</a>.Market Outlook: A strong start in Asia on the back of the US FDA approval of Pfizer’s vaccine may begin the week. However, the cognitive dissonance trade which ignores distribution and time extension risk may be overcome by a buy the rumor, sell the fact tactical trade since positive sentiment from vaccine news is already priced in. Event risk should take hold as the week progresses. With economic recovery increasingly priced-into risk assets but mispriced in risk-free assets due to central bank policies, the ability to hedge market downturns may be impaired. This could exacerbate a market correction.

Three macro events this week should drive near term returns. The outcomes may appear fiendish to over-extended investors, much in the same way that Krampus, the mythical counterparty to St. Nicholas, taunts naughty children.The events include the outcome of the Fed’s Federal Open Market Committee meeting, the final week for the US Congress to agree addition US federal stimulus bill this year and the almost final week towards a Brexit deal. Resulting US dollar strength could snuff out the recent rally in Asia and broader EM US$-denominated credit.Expectations that the Fed could alter its bond purchase program at its upcoming meeting has limited bearish sentiment in the long end of the Treasury market. Look for a decision to extend the weighted average maturity of its bond purchases. The failure of the Fed to deliver could embolden the market to break a psychological 1% barrier on the 10-year Treasury bond. This would be beneficial to bank securities over the short term, especially if it occurs in tandem with continued bear steepening from the short end of the curve. However, this would raise the real effective rate and could be dollar negative. Asia and EM securities could react.Even if the Fed delivers what one-half of the market expects by altering its bond buying program, there are other extenuating circumstances that could result in a flight to quality, such as renewed lockdowns, the lack of a federal fiscal package and / or Brexit agreement. In a reversal of the recent trend of bad news = buy, the lack of federal stimulus would lower risk sentiment. We remain unconvinced that an actual agreement is the underlying goal of these negotiations. Control of the US Senate is at stake and the political posturing plays right into that race. Failure to reach an agreement would move all eyes to the Senate run-off races in January. Please see out last weekly, The New Equation is Bad News = Buy, for more details. The continuing saga of Brexit negotiations may also change investor risk preferences. As we approach a no deal deadline, signaling to prepare for a ‘hard Brexit’ or ‘Australian-option’ trade agreement, depending on your Brexit stance, is already impacting rates. The lack of an agreement could revive flight to quality trades as we cross into the new year.Against this backdrop, Asia High Yield securities continued to outperform US HY, as in the last few weeks. Caa-rated US credits softened slightly, although by less than Ba and B rated securities. Risk remains over-bid and the consensus trade on rates, the dollar and trade is disconcerting. Regarding over-bid risk, please see YES Bank: Par is Plenty- Move to Underweight. As regards a trade to counter the over-consensus market, please see Société Générale AT1: Resolution or Resilience in the Retail Restructuring? Take Shorter Duration.Market Outlook: A strong start in Asia on the back of the US FDA approval of Pfizer’s vaccine may begin the week. However, the cognitive dissonance trade which ignores distribution and time extension risk may be overcome by a buy the rumor, sell the fact tactical trade since positive sentiment from vaccine news is already priced in. Event risk should take hold as the week progresses. With economic recovery increasingly priced-into risk assets but mispriced in risk-free assets due to central bank policies, the ability to hedge market downturns may be impaired. This could exacerbate a market correction.

Bank Credit Weekly: Krampus Is Coming to Town: Fed, Stimulus & Brexit to Taunt Over-Eager Investors

The worse the economic news, the greater the expectation of US federal stimulus, the more the market rallies. Investors may be surprised to find that recent federal stimulus discussions are more appearance than substance. The balance of the US Senate is at stake and this posturing plays right into that election.Despite the overall improved risk tone, emerging market capital inflows flattened to remain at their highest levels since mid-February. This is surprising as almost everyone expects a weakening dollar next year. This is not a good sign. So long as yields are rising due to economic growth expectations, all is good; however, if yields are rising due to increasing inflation expectations, then a market correction is inevitable as investors re-assess policymaker’s commitment. Much depends on what and how the Fed communicates. Signs of wavering from overshooting inflation targets could spark a mini-taper tantrum.While global risk sentiment strengthened, Asia’s high yield markets outperformed the US indexes. Asia’s outperformance was likely due to more encouraging news from the region in terms of November’s PMIs which went down well with increased US federal stimulus expectations. Nonetheless, Asia’s HY index still has considerable room to catch-up with the US index. This difference was at its widest level in over 10-years recently and had hit a low of 1.45pp three months ago. This volatility seems overdone. We believe this to be due to US market irrational exuberance although increased concerns on the health of China’s debt issuers also played a part. Rising expectations for the Fed to take bond-supportive policy steps and the potential for another round of fiscal stimulus also play in the market dynamics. However, the Fed may not move before knowing the outcome of the Senate elections and federal stimulus discussions may be a false dawn. As such, we continue to suggest positioning for spread compression between the US and Asia HY indexes via the US Caa-rated index level.Within this environment, Asia’s High Yield bank bonds continued to outperform, although almost all bank bond prices rose on increased risk sentiment. Asia’s lowest rated bank bonds led in terms of spread outperformance. However, a Fed-influenced cap on US longer-term rates may not be bank friendly. We caution bank investors that Fed programs are forever, so be careful what you wish for. Remember when Quantitative Easing ended?Market Outlook: The question now is whether the federal stimulus discussion is about economic or political reality. We hope that our US federal stimulus cynicism is proven incorrect. Assuming we are incorrect, tension between longer-term optimism from vaccine driven economies and the shorter-term reality of increasing Coronavirus lockdowns may then weigh on the market. The recent surge in bullish sentiment raises the question of whether it is sustainable or if a correction may be around the corner, possibly due to the lack of Fed action in its asset purchase program. We are now more deeply set-up for buy-the-rumor, sell-the-fact profit taking.

The worse the economic news, the greater the expectation of US federal stimulus, the more the market rallies. Investors may be surprised to find that recent federal stimulus discussions are more appearance than substance. The balance of the US Senate is at stake and this posturing plays right into that election.Despite the overall improved risk tone, emerging market capital inflows flattened to remain at their highest levels since mid-February. This is surprising as almost everyone expects a weakening dollar next year. This is not a good sign. So long as yields are rising due to economic growth expectations, all is good; however, if yields are rising due to increasing inflation expectations, then a market correction is inevitable as investors re-assess policymaker’s commitment. Much depends on what and how the Fed communicates. Signs of wavering from overshooting inflation targets could spark a mini-taper tantrum.While global risk sentiment strengthened, Asia’s high yield markets outperformed the US indexes. Asia’s outperformance was likely due to more encouraging news from the region in terms of November’s PMIs which went down well with increased US federal stimulus expectations. Nonetheless, Asia’s HY index still has considerable room to catch-up with the US index. This difference was at its widest level in over 10-years recently and had hit a low of 1.45pp three months ago. This volatility seems overdone. We believe this to be due to US market irrational exuberance although increased concerns on the health of China’s debt issuers also played a part. Rising expectations for the Fed to take bond-supportive policy steps and the potential for another round of fiscal stimulus also play in the market dynamics. However, the Fed may not move before knowing the outcome of the Senate elections and federal stimulus discussions may be a false dawn. As such, we continue to suggest positioning for spread compression between the US and Asia HY indexes via the US Caa-rated index level.Within this environment, Asia’s High Yield bank bonds continued to outperform, although almost all bank bond prices rose on increased risk sentiment. Asia’s lowest rated bank bonds led in terms of spread outperformance. However, a Fed-influenced cap on US longer-term rates may not be bank friendly. We caution bank investors that Fed programs are forever, so be careful what you wish for. Remember when Quantitative Easing ended?Market Outlook: The question now is whether the federal stimulus discussion is about economic or political reality. We hope that our US federal stimulus cynicism is proven incorrect. Assuming we are incorrect, tension between longer-term optimism from vaccine driven economies and the shorter-term reality of increasing Coronavirus lockdowns may then weigh on the market. The recent surge in bullish sentiment raises the question of whether it is sustainable or if a correction may be around the corner, possibly due to the lack of Fed action in its asset purchase program. We are now more deeply set-up for buy-the-rumor, sell-the-fact profit taking.

Bank Credit Weekly: New Equation Is Bad News = Buy

The risk-on wave caught a bid in Asia high yield markets this week while positive momentum in US Caa-rated credits slowed. Asia’s outperformance was likely due to more encouraging news out of China. Top financial regulators in China stated that they would provide reasonable and sufficient liquidity as they handle a recent series of corporate credit defaults.In the US, the lowest rated Caa-component continued to rally on expectations that a meaningful economic restart will be brought forward. Positive reactions to vaccine news have grown steadily smaller as favorable outcomes are increasingly priced into the markets. The question is whether a complete re-opening of the global economy is fully priced. We re-iterate that the vaccine and election outcome news appear to be fully priced. We have full bull. It may be time to sell the vaccine and the goldilocks election result via the Caa tranche.Optimism surrounding the planned designation of former Fed Chairperson Janet Yellen as the new Treasury Secretary fueled Treasury market moves. Investors were relieved that President-elect Biden is choosing market-friendly moderates to fill his cabinet positions, rather than more socialist bent progressives. The choice of Janel Yellen as Treasury Secretary was particularly welcome by bank investors both due to her prior experience and because Biden did not choose Elisabeth Warren for the role. Nonetheless, Senator Warren's antagonism of the financial industry may gain weight should the Senate swing to a Democratic majority in the Georgia election run-offs.Against this backdrop, Asia’s HY Senior Unsecured bank bonds outperformed, although almost all bank bond prices rose in Asia’s risk-on environment. <a href="https://www.smartkarma.com/entities/vietnam-prosperity-jsc-bank" target="_blank" data-smartkarma-citation="entities:26914:1" rel="noopener">Vietnam Prosperity Bank (VPB VN)</a> and <a href="https://www.smartkarma.com/entities/iifl-holdings-ltd" target="_blank" data-smartkarma-citation="entities:20197:1" rel="noopener">IIFL Finance (IIFL IN)</a>, a non-bank finance company headquartered in India, led this performance, tightening by 45 basis points (bps) and 49bps, respectively. We suspect that the tension between vaccine news and Coronavirus contagion will increase volatility amongst higher yielding bank bonds although we anticipate downward sloping saw-tooth spread tightening over the near term.   Amongst Asia’s Additional Tier 1 (AT1) bonds, the <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia (BNKEA)</a> complex continued to outperform, with the 2024 and 2022 first call bonds tightening by 29 and 24bps, respectively. We recently moved to Outperform, from Buy, on BNKEA’s inefficient capital securities. Please see <a href="https://www.smartkarma.com/insights/bank-of-east-asia-move-to-overweight-the-capital-inefficient-securities-from-buy" target="_blank" data-smartkarma-citation="insights:45652" rel="noopener">Move to Overweight the Capital Inefficient Securities, from Buy</a> for more details. In addition, <a href="https://www.smartkarma.com/entities/bangkok-bank-public-co-ltd" target="_blank" data-smartkarma-citation="entities:213:1" rel="noopener">Bangkok Bank Public (BBL TB)</a> continued to outperform its Thai-headquartered AT1 issuers by tightening 22bps while <a href="https://www.smartkarma.com/entities/tmb-bank-pcl" target="_blank" data-smartkarma-citation="entities:8090:1" rel="noopener">TMB Bank (TMB TB)</a> widened 2bps. Please see <a href="https://www.smartkarma.com/insights/bangkok-bank-s-new-at1-overweight-on-relative-value" target="_blank" data-smartkarma-citation="insights:43402" rel="noopener">Bangkok Bank’s New AT1 – Overweight on Relative Value</a> for our views. Finally, amongst Asia-centric banks, certain <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a> bonds have greatly outperformed over the last few weeks on expectations of a potential tender offer by the firm to buy-back the securities. Please see: <a href="https://www.smartkarma.com/insights/standard-chartered-legacy-tier-1-is-on-fire" target="_blank" data-smartkarma-citation="insights:45722" rel="noopener">Standard Chartered Legacy Tier 1 is on Fire</a> for more details.Market Outlook: Over the near term, tension between longer-term optimism from vaccine driven economies and the shorter-term reality of increasing Coronavirus lockdowns are likely to weigh on the market in the coming weeks. Concerns that the recent surge in bullish sentiment raises the question of whether it is sustainable or if a correction may be around the corner, possibly with the final approval of various vaccine treatments. We are set-up for buy-the-rumor, sell-the-fact profit taking.

The risk-on wave caught a bid in Asia high yield markets this week while positive momentum in US Caa-rated credits slowed. Asia’s outperformance was likely due to more encouraging news out of China. Top financial regulators in China stated that they would provide reasonable and sufficient liquidity as they handle a recent series of corporate credit defaults.In the US, the lowest rated Caa-component continued to rally on expectations that a meaningful economic restart will be brought forward. Positive reactions to vaccine news have grown steadily smaller as favorable outcomes are increasingly priced into the markets. The question is whether a complete re-opening of the global economy is fully priced. We re-iterate that the vaccine and election outcome news appear to be fully priced. We have full bull. It may be time to sell the vaccine and the goldilocks election result via the Caa tranche.Optimism surrounding the planned designation of former Fed Chairperson Janet Yellen as the new Treasury Secretary fueled Treasury market moves. Investors were relieved that President-elect Biden is choosing market-friendly moderates to fill his cabinet positions, rather than more socialist bent progressives. The choice of Janel Yellen as Treasury Secretary was particularly welcome by bank investors both due to her prior experience and because Biden did not choose Elisabeth Warren for the role. Nonetheless, Senator Warren's antagonism of the financial industry may gain weight should the Senate swing to a Democratic majority in the Georgia election run-offs.Against this backdrop, Asia’s HY Senior Unsecured bank bonds outperformed, although almost all bank bond prices rose in Asia’s risk-on environment. Vietnam Prosperity Bank (VPB VN) and IIFL Finance (IIFL IN), a non-bank finance company headquartered in India, led this performance, tightening by 45 basis points (bps) and 49bps, respectively. We suspect that the tension between vaccine news and Coronavirus contagion will increase volatility amongst higher yielding bank bonds although we anticipate downward sloping saw-tooth spread tightening over the near term.   Amongst Asia’s Additional Tier 1 (AT1) bonds, the Bank of East Asia (BNKEA) complex continued to outperform, with the 2024 and 2022 first call bonds tightening by 29 and 24bps, respectively. We recently moved to Outperform, from Buy, on BNKEA’s inefficient capital securities. Please see Move to Overweight the Capital Inefficient Securities, from Buy for more details. In addition, Bangkok Bank Public (BBL TB) continued to outperform its Thai-headquartered AT1 issuers by tightening 22bps while TMB Bank (TMB TB) widened 2bps. Please see Bangkok Bank’s New AT1 – Overweight on Relative Value for our views. Finally, amongst Asia-centric banks, certain Standard Chartered (STAN LN) bonds have greatly outperformed over the last few weeks on expectations of a potential tender offer by the firm to buy-back the securities. Please see: Standard Chartered Legacy Tier 1 is on Fire for more details.Market Outlook: Over the near term, tension between longer-term optimism from vaccine driven economies and the shorter-term reality of increasing Coronavirus lockdowns are likely to weigh on the market in the coming weeks. Concerns that the recent surge in bullish sentiment raises the question of whether it is sustainable or if a correction may be around the corner, possibly with the final approval of various vaccine treatments. We are set-up for buy-the-rumor, sell-the-fact profit taking.

Bank Credit Weekly: Play Safe in Asia or Ride the US Bull?

Thailand

TMB Bank Public Company Limited provides a full range of banking and financial services. The Bank offers corporate and personal lending, retail and wholesale banking, international trade financing, and investment banking services to its customers throughout Thailand.  It also has branches in Hong Kong, Laos, and Cayman Island.

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TMB Bank PCL (TMB-R TB)

Bank Credit Compass: Regime Change May Limit the Annual January Bounce

Goldilocks may morph into a market wolf if the US Senate changes hands while 100 mask wearing days haunts of Carter-like sentiment. This is not...

Hank Calenti, CFA

Snippets #47: Pa Daeng's Trades, Battle for CAT's 5G Network

Country Group gets busy: Selling power, buying hotels, issuing warrants, while AIS and the other two telcos duke it out to supply towers to CAT's...

Athaporn Arayasantiparb, CFA

Bank Credit Weekly: Krampus Is Coming to Town: Fed, Stimulus & Brexit to Taunt Over-Eager Investors

3-macro event outcomes this week may taunt over-eager investors. US-$ strength could halt the recent rally in Asia and broader EM US$-denominated...

Hank Calenti, CFA

Bank Credit Weekly: New Equation Is Bad News = Buy

The worse the economic news, the greater the expectation of US federal stimulus, the more the market rallies. We are now more set-up for buy-the...

Hank Calenti, CFA

Bank Credit Weekly: Play Safe in Asia or Ride the US Bull?

The risk-wave caught a bid in Asia HY while positive momentum in US Caa-rated credits slowed. We are set-up for buy-the-rumor, sell-the-fact profit...

Hank Calenti, CFA

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