Asia junk bonds may return 14%

HSBC PRIVATE BANKING has joined a growing number of funds that are bullish on Asia’s junk bonds and expect further gains after a strong rally in the first quarter.
US currency junk notes in the region have gained 5.6% so far this year, in the strongest start since 2012, according to ICE BofAML data. The private wealth arm of HSBC Holdings Plc sees more scope for gains, fueled by Chinese developers that are making progress cutting debt. “Stealth easing” of Chinese property curbs has also raised hopes of a boost ahead, even as new home price growth abated for a fourth straight month.
HSBC Private Banking predicts that Asian dollar junk debt could return 14% in 2019 after losses last year, while Asia investment-grade bonds may return 7%, according to Jeffrey Yap, Hong Kong-based regional head of fixed income, currencies and commodities, Asia.
The firm is positive on Chinese property US currency junk notes, which make up a high proportion of the region’s speculative-grade debt, as deleveraging efforts by developers have been “on track,” and their sales have been strong, said Yap, whose firm manages $309 billion in assets globally.
Average yields on Asia’s junk dollar notes have fallen about 2 percentage points so far this year to 6.9%, but they are still above the low of 5.9% in the past 12 months, according to a Bloomberg Barclays index. — Bloomberg