- Based on our Asia macro and earnings outlook, we expect lower stress and healthy fundamentals for Asia high yield issuers this year. We also hold a constructive view on China's real estate sector, which should lay a positive backdrop for China high yield issuers.
- Asia high yield provides strong coupon return, offering handsome yield pick-ups over peer segments. Valuation for the asset class remains cheap, with spread close to one standard deviation above historical average. We expect ample room for tightening, back to near pre-Covid levels, driving upside for price return.
- Interest rate risk remains muted given lower duration and high yield per unit duration. Default risk is subsiding and will be manageable with current spread compensating well for undertaking such risk. We view risk premia offered by Asia high yield to be very attractive.
- Asia high yield is one of our top fixed income pick for 2021 and current yield/ spread presents good entry opportunity.
Chart 1: Asia HY was hit hard back in Mar ’20 but has since rebounded valiantly
Excellent yield pickup opportunity
Chart 2: Asia HY offers the highest yield on a relative basis …
Chart 3: … yield pickup over both IG and HY are also substantial
Cheap valuation and potential for further spread compression
Chart 4: Valuation for the fixed income space has turned expensive
Chart 5: Asia HY spread near +1 Standard deviation from historical average (Z-score of 0.7)
Attractive subsequent return at current yield level
Chart 6: Average 1yr return at various yield at entry
Chart 7: Average annualised return on a 2Yr rolling period at various yield at entry
Healthy fundamentals supported by Asia’s macro and earnings recovery
Chart 8: During improving macro backdrop (CESI APAC >0 or in an uptrend) spread tends to compress and remain muted, vice versa
Manageable default risks, spreads adequately compensates for credit risk
Chart 9: Default rate for Asia HY expected to fall to 2.5% in 2021
Chart 10: Spread implies a default rate higher than forecast, suggesting adequate compensation
Duration provides defense against interest rate risks
Chart 11: Asia HY possess the smallest duration and largest yield per duration (2.2%)
View on China and its real estate sector
Riding on Asia high yield in 2021
Recommended products
|
Category |
Products |
|
Unit Trust |
|
|
ETF |
The Research Team is part of iFAST Financial Pte Ltd.
All materials and contents found in this site are strictly for general circulation and informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the funds or products found/identified in this site. While iFAST Financial Pte Ltd ("IFPL") has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies and typographical errors. Any opinion or estimate contained in this report is made on a general basis and neither IFPL nor any of its servants or agents have given any consideration to nor have they or any of them made any investigation of the investment objective, financial situation or particular need of any user or reader, any specific person or group of persons. You should consider carefully if the products you are going to purchase are suitable for your investment objective, investment experience, risk tolerance and other personal circumstances. If you are uncertain about the suitability of the investment product, please seek advice from a financial adviser, before making a decision to purchase the investment product. Past performance is not indicative of future performance. The value of the investment products and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. In respect of any matters arising from, or in connection with the said research analyses or research reports, recipients of the report are to contact IFPL at 10 Collyer Quay, #26-01 Ocean Financial Centre Building, Singapore 049315, or by telephone at +65 6557 2853. Where the report contains research analyses or research reports from a foreign research house and if the recipient of such research analyses or research reports is not an accredited investor, expert investor, institutional investor or an ex-accredited investor, IFPL accepts legal responsibility for the contents of such analyses or reports to such persons only to the extent as required by law. Please note that only certain security(ies) herein are available to all investors, while the rest are only available for certain persons to invest in, such as Accredited Investors (as defined in the Securities and Futures Act) or one who invests at least S$200,000 (or its equivalent currency) per transaction. To qualify as an Accredited Investor, one needs to submit a declaration form and certain relevant supporting documents, according to iFAST’s prevailing policies and procedures.
Please read our full disclaimers on the website at ( https://secure.fundsupermart.com/fsmone/policies/328125/investment-account-terms-&-conditions).
iFAST Financial Pte Ltd (IFPL) (registered address: 10 Collyer Quay #26-01 Ocean Financial Centre Singapore 049315, Telephone: 6557 2000) holds the Financial Advisers Licence issued by the Monetary Authority of Singapore ('MAS') to conduct regulated activities of advising on securities, marketing of collective investment schemes and arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance and the Capital Markets Services Licence issued by the MAS to conduct regulated activities of dealing in securities and providing custodial services for securities. While IFPL has made every effort to ensure the independence of the report's contents, IFPL's nature of business is such that IFPL and its connected and associated entities together with their respective directors, officers and staff may be involved in providing dealing or investment-related services in the abovementioned securities, and have taken or may take positions in the securities mentioned in this report, and may also act as the principal for any buy or sell trades.