Halister News

(Bloomberg) -- Baring Asset Management is looking to buy onshore Chinese corporate debt to take advantage of yield premiums built on default concerns.

• Average investment-grade debt yields ~4%, which is “quite attractive” in local currency terms, Sean Chang, head of Asian debt investment at Baring Asset Management (Asia) Ltd, said in an interview
  • The fund manager likes “household” tech names, and major transport and utility companies, said Chang, who declined to give specifics. So far, default rate in China is relatively low, with regulators monitoring closely, he said
  • NOTE: 18 publicly-issued notes have defaulted in the onshore market so far this yr, compared with 7 for the whole of 2015. Yield for 5-yr onshore corporate debt rated AA traded around 3.4% this week, according to ChinaBond data
• Baring, which is setting up accounts for China’s interbank bond market, is also keen to buy government bonds and the debt of Chinese policy and agency banks, Chang said
• Chang expects yield curves to flatten in China, with the long end declining 50-80 bps. Yield at the short end will closely match other key rates such as repo and bank deposit rates
• China’s policymakers are also likely to ease “to provide stimulus,” which means yields would decline, he said
• Yuan may appreciate vs major currencies should its adoption into the SDR basket and Chinese markets inclusion in global equity and bond indexes drive inflows
  • Global investors have been underweight China because there is only partial access to mainland markets, Chang said
  • Yuan is “normalizing” this year and there haven’t been signs of excessive intervention. With SDR inclusion, PBOC will let markets decide on the currency level
• Baring is part of Massachusetts Mutual Life Insurance Co