Stocktake: Investor Sentiment Towards Asia Remains Buoyant? DCM, ECM and Alternatives in the Mix

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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