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Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

The rally in Asia’s financial institutions is beginning to look a bit long in the tooth. At aggregate index levels, Asia-headquartered financial yields are lower than beginning of the year levels, irrespective of the index considered.To the untrained eye, this would suggest that the party is over, however, this ignores the alternate investment opportunity as well as ongoing market technical dynamics which could keep things afloat for longer than anticipated.Crowding-in affects by central banks as well as the continuing unwinding of assets placed in safe havens, such as US$ Money Market Fund assets, could result in indiscriminate buying of Asia-headquartered financials by non-Asian investors.Excluding this hunt for yield across the global, fundamentally more, albeit limited, upside remains available from investing in securities issued by Asia-headquartered financial institutions. However, a January bounce is not out of the question. Financial assets could overshoot fundamental valuations over the near term. As such, given where we start from, absent another market shock, Asia’s bank credit indexes and securities may offer positive total returns during the first quarter of 2021, albeit at relatively lower levels than seen in the second half of 2020.

The rally in Asia’s financial institutions is beginning to look a bit long in the tooth. At aggregate index levels, Asia-headquartered financial yields are lower than beginning of the year levels, irrespective of the index considered.To the untrained eye, this would suggest that the party is over, however, this ignores the alternate investment opportunity as well as ongoing market technical dynamics which could keep things afloat for longer than anticipated.Crowding-in affects by central banks as well as the continuing unwinding of assets placed in safe havens, such as US$ Money Market Fund assets, could result in indiscriminate buying of Asia-headquartered financials by non-Asian investors.Excluding this hunt for yield across the global, fundamentally more, albeit limited, upside remains available from investing in securities issued by Asia-headquartered financial institutions. However, a January bounce is not out of the question. Financial assets could overshoot fundamental valuations over the near term. As such, given where we start from, absent another market shock, Asia’s bank credit indexes and securities may offer positive total returns during the first quarter of 2021, albeit at relatively lower levels than seen in the second half of 2020. 

Bank Credit Strategy: Q1 Glass Half Full as Market Dynamics Overwhelm Relative Valuations

Asia High Yield Bond Index

Bank Credit Strategy: Q1 Glass Half Full as Market Dynamics Overwhelm Relative Valuations