Faced with a slowing economy, we believe Beijing has shifted its focus away from tackling the country’s medium-term structural problems. The priority now, in our view, is supporting the economy, including the debt-ridden property sector where building activity and property sales fell after stricter controls were imposed.
We expect policy support for real estate developers to increase. This should, in our view, lead to a normalisation of the credit spreads for both Chinese real-estate bonds and the broader high-yield (HY) debt market in Asia. We believe this constitutes an attractive investment opportunity.
The current level of spread differentials between Asia and US HY makes Asia HY valuations look attractive.
Versus emerging market peers, Asia HY admittedly has weaker metrics, but this is not new. Based on our assessment , current valuations look attractive, particularly to high-conviction investors such as us. They offer scope for appealing returns if, as we expect, Chinese policymakers extend further support to the Chinese economy, with positive consequences for the real estate sector.
We also see Asian investment-grade (IG) debt as attractive relative to other emerging market and developed market IG bonds.
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