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Chinese Credit Beats Asian Peers as Huarong Worries Recede

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(Bloomberg) -- Despite China’s regulatory clampdown on private businesses and worsening woes at China Evergrande Group, the nation was the place to go to in Asia for corporate bond returns in August, and the bullishness may linger.

That’s because one of worries hanging over bond investors in the country eased after a bail-out of the nation’s bad-debt manager China Huarong Asset Management Co.

Chinese notes rebounded in August after two months of losses, with total return on corporate dollar debt of 1.5%. That was its best showing since July last year and beat a 1.1% gain in the broader Asian emerging market notes and 0.7% return among the Southeast Asian peers, according to Bloomberg Indices.

Pacific Investment Management Co. is becoming more positive about growth ahead in Asia, with the firm favoring cyclical sectors such as auto and transportation companies in China and India, and selective consumer service providers in the region, Stephen Chang, a Hong Kong-based portfolio manager, told Bloomberg TV.

The fate of Evergrande, the world’s most indebted developer, remains a concern for China’s bond market though. With its total liabilities near a record high, the firm need to accelerate asset sales and continue to aggressively discount apartment prices to generate enough cash to meet its obligations.

Why China Is Bailing Out Huarong But Punishing Others: Shuli Ren

Nearly 20 notes from Huarong rallied in August, making them the top performers in China’s dollar credit market. The nation’s high-yield dollar debts led the rally with 3.1% return last month compared with 1.1% gain in the nation’s investment-grade notes and 2.4% rise in the overall Asian low-rated debts.

The spread of China’s high-yield credit was wide enough to support “a near-term respite” but medium-term risks for such debt remain as the government tries to reign in excesses in the nation’s property sector, according to Winson Phoon, head of fixed income research at Maybank Eng Kim Securities Pte Ltd. in Singapore.

Asia

Spreads of Asia investment grade dollar bonds widened by 2-4 basis points on Wednesday while the premium for Chinese high-yield debts were little changed, according to traders.

Seven issuers in Asia are hitting the primary market on Tuesday amid intensifying signals that central banks across the globe may soon pull back some stimulusConcerns over the debt situation of Evergrande may escalate after its results showed the group’s total liabilities, including bills owed to suppliers, rose to 1.97 trillion yuan ($305 billion) as of June 30 while the group’s cash and cash equivalents plunged to a six-year low

Europe

Issuance of hybrid corporate bonds in Europe is poised to surpass the record of more than 50 billion euros set in 2020 as investor demand remains strong in a low interest rate environment, Scope Ratings analyst Azza Chammem wrote in a note.

Pan-Asian life insurer AIA Group Ltd. is planning to sell euro-denominated bonds for the first time in order to diversify its funding and buyer-base, according to an investor presentationAustria plans to issue its first-ever green bond next year, joining the flock of nations looking to issue debt tailored for investors with an environmentally conscious mandate

U.S.

The Markit CDX North America Investment Grade Index, a gauge of risk in debt markets, rose Tuesday morning after hitting the tightest level in more than six months on Monday as investors assess the path of global central bank stimulus.

The retail shakeout has slowed, with fewer bankruptcy filings and store closings in the first half of 2021 compared to the last two years, according to a new report from advisory firm BDO USA

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