Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

China’s Yuan Woes/Pollution Costs/Bond Defaults/Financial Risks/Iron Ore

China Economics: The Politics Behind China’s Recent Policy Shift

Asian Credit Monitor: 2019 Portfolio Strategy, US Rate Trajectory, China Reform Pause

China Economist

Kerry Liu

Macroeconomics

<p>2018 has seen a number of corporate defaults for the Chinese onshore bond market. That has led investors to become more risk averse, in our judgment. The yield on “AA+” rated onshore corporate bonds have risen to 3.55% from 3.29% at the beginning of the year. The primary market also suffers. For example, on 21-May-2018, Beijing Orient Landscape could only raise RMB50mn out of the originally-planned RMB 1bn. In general, we have found the following:</p><ul class=""><li>By the number and value of defaults, this wave of Chinese corporate bond defaults in 2018 is no different from those in 2016 and 2017.</li><li>The main reason for this round of corporate bond defaults is the policy combination of “easing monetary policy” plus "tightening credit", which lead to the cash flow issues of some Chinese firms. The big background is Chinese authorities’ endeavour of preventing a systemic risk of financial system and strong regulation on shadow banking activities / non-standard investment products starting from late 2016.</li><li>China may further loosen its monetary policy including RRR cut(s) in the future (breaking news: the PBOC said on 24 June that China will lower some banks RRR by 50 basis points on July 5)</li></ul><p>We aim to answer these questions in this report. How is this time different? What are the reasons? What is the next?</p>

2018 has seen a number of corporate defaults for the Chinese onshore bond market. That has led investors to become more risk averse, in our judgment. The yield on “AA+” rated onshore corporate bonds have risen to 3.55% from 3.29% at the beginning of the year. The primary market also suffers. For example, on 21-May-2018, Beijing Orient Landscape could only raise RMB50mn out of the originally-planned RMB 1bn. In general, we have found the following:By the number and value of defaults, this wave of Chinese corporate bond defaults in 2018 is no different from those in 2016 and 2017.The main reason for this round of corporate bond defaults is the policy combination of “easing monetary policy” plus "tightening credit", which lead to the cash flow issues of some Chinese firms. The big background is Chinese authorities’ endeavour of preventing a systemic risk of financial system and strong regulation on shadow banking activities / non-standard investment products starting from late 2016.China may further loosen its monetary policy including RRR cut(s) in the future (breaking news: the PBOC said on 24 June that China will lower some banks RRR by 50 basis points on July 5)We aim to answer these questions in this report. How is this time different? What are the reasons? What is the next?

MSCI AC Asia ex Japan Index (MXASJ INDEX)

Asian Credit Monitor: The Chinese Corporate Bond Default, Not a Systemic-Risk