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Rapid acceleration of the
coronavirus outbreak and uncertainly about its
impact on global economic activity add to the list
of worries for investors at a time when China’s
economy was just beginning to recover from the
slowdown following the trade dispute with the United
States.
The Shanghai Composite Index
closed 7.7 percent lower on the first day of trading
after the extended Lunar New Year holiday, shredding
about 2.6 trillion Yuan ($375 billion) in market
value. This marks the biggest daily fall in more
than four years. While the China stock markets are
dominated by domestic retail investors, the sell-off
is partially reflective of the concerns that the
wider market shares.
Hong Kong, the world’s largest
initial public offering (IPO) market, is also
reportedly
readying for a further dip in IPO
activities
as a result of the Covid-19 epidemic, after
suffering from months of unrest in the city.
At the same time,
institutional investors are also anxious about two
related themes pertaining to the world’s second
largest economy – political and regulatory imposts
as well as potential international trade conflicts,
according to recent research conducted by East and
Partners with the world’s top 200 AUM Fixed Asset
investors.
The Asia Bond Survey 2019 highlighted renewed
concerns over reducing yields on offer as the pool
of negative-yielding debt in the more developed
markets continues to grow.
Appetite for Asian
Credit Remains Strong
While disruption associated
with the spread of the virus is likely to weigh on
the market’s near-term outlook, demand for Asian
paper is expected to grow. Several Asian economies
have gone from strength to strength in recent years
as reflected in their improving sovereign credit
ratings, and so are the fundamentals of Asian
corporates. In addition, a low correlation between
the Asian fixed income market and other fixed income
markets offers a good diversification for global
investors.
This strong appetite for Asian
paper is also underpinned by improving default rate
outlooks. According to the latest Asia Bond Survey,
close to two-thirds of investors expect the credit
default rate to remain stable in the next 12 months,
while 15 percent anticipate it to fall. In short,
global investors are cautiously optimistic about the
market.
Asia Bond Default Rates
Outlook
% of fixed income
institutional investors
Source: East &
Partners insights research for HSBC and S&P’s Asia
Bond Survey – H2 2019
(N count = 178)
The Best DCM and ECM House in
Asia
So, who do these institutional
investors and issuers like best for their financing
and investment needs? Based on the recent
FinanceAsia 2019 Achievement Awards
where 350 direct interviews were completed,
including 100 of the region’s top investors and 25
of the largest market cap corporations from 10
markets in Asia Pacific, Citic Securities is ranked
first among Asian-headquartered institutions for
debt capital market (DCM) services. As for providers
headquartered outside the region, HSBC has been
voted as the best DCM house.
The equity capital market (ECM)
category for international banks is led by Goldman
Sachs, while Citic Securities dominates the Asian
league table. Interestingly, institutional investors
and issuers are largely in agreement on their
favourite investment banks.
Growing Interest in
Alternative Assets
Alternative and collectible
investments are now considered to be part of the
mainstream in Asia. Real estate, jewellery &
gemstones, antique & antiquities, watches and even
wineries often find their way into High Net Worth
Investor (HNWI) portfolios in varying degrees. For
instance in Hong Kong, over nine in ten high net
worth individuals report having exposure to at least
one form of alternative assets.
While these investments are
predominantly driven by the collector’s passion, as
opposed to purely transactional where investors are
simply looking for attractive returns, most HNWIs
see alternative assets generating significantly
greater returns relative to traditional investments.
We expect to see growing demand for all alternative
asset classes in the next 12 months except for one –
prestige motor vehicles where forecast demand is
slumping.
Investment in Alternative Asset Classes in Hong Kong
% of high net worth
individuals
Source: East &
Partners insights research on High Net Worth
Alternative Asset Investors
– H1 2019 (N count =
505)
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