Asian Bond Markets ‘Trumpmatized’; Malaysia 3Q GDP Expanded at 4.3%

14 November 2016

Credit Markets Weekly

Asian Bond Markets ‘Trumpmatized’; Malaysia 3Q GDP Expanded at 4.3%

                                                                       

APAC USD CREDIT MARKETS

¨      Robust demand for IG credits following the volatility spurred by Trump’s victory. IG spreads tightened 8.2bps WoW to 188bps, whereas average non-IG bond yields gained 8bps to 6.52%. Asian IG CDS soared 7bps WoW to 125.6bps as demand for credit protection increased particularly in high grade Chinese/HK (Hutchison Whampoa, Bank of China) and sovereign names (Indonesia, Malaysia and China). The US election thriller which saw D.Trump elected as the 45th US President caused significant volatility particularly in the govt bond space. The sell-off in USTs saw yields climb 13-39bps WoW across the curve as the UST 10y jumped to its highest level since Jan-16 at 2.15% (+37bps), while the 2y added 13bps to 0.92%. Despite Trump’s upset win, markets still expects the US Fed to raise rates in Dec as attention shifted towards the President-Elect’s economic policy direction to ultimately boost economic growth and inflation. Accordingly, the probability of a Dec rate hike remains firmly above 80%, in-line with views prior to the US elections.

¨      Turning to ratings, Yuexiu REIT’s rating was slashed by S&P to BBB-/Sta from BBB driven by higher expected leverage due to its debt-funded acquisition of a Shanghai office building and weaker FFO projections from the expiry of income support from its major shareholder, Yuexiu Property Co.Ltd. Moody’s downgrade Lotte Shopping Co Ltd’s to Baa3/Sta from Baa2 premised on weaker earnings and poor financial leverage profile over the next few years, mainly due to poor hypermarket operating performance. Moody’s expects Lotte’s debt/EBITDA to elevate to 4.7x over 1-2years. On the flipside, S&P upgrades KEB Hana Bank to A+/Sta from A on the back of its strengthened capitalization levels and reduced credit concentration risks by rebalancing and reducing risks levels in its loan portfolio.

¨      The higher market volatility has pushed back primary issuances in the USD space, particularly from China as supply decreased further to USD1.4bn from USD4.0bn in the earlier week, bringing the total YTD issuance to USD209.1bn.

SGD CREDIT MARKETS

¨      Issuances YTD 17% lower YoY; Bank lenders reject Swissco’s restructuring plan. Singapore Airlines Ltd (NR) was the sole issuer last week with a SGD430m 10y at 3.13%, with YTD issuances at SGD18.7bn, around 17% lower than a similar period last year. First Resources Ltd saw a 40.6% YoY rise in 3Q16 revenue mainly due to higher CPO prices in 3Q16 at MYR2,629/MT (3Q15: MYR2,082), while Gallant Ventures’ (NR) 3Q16 revenue dipped 13% YoY due to lower auto and equipment sales. In the bonds space, PT Ciputra Property (NR) announced that its proposal for an early redemption option for the SGD65m CTRPIJ 2/18 has received approval, and it is due to a planned merger between PT Ciputra Property and its key shareholder PT Ciputra Development. Swissco Holdings (NR), which defaulted on its SGD100m SWCHSP 4/18 in Oct-2016, announced that its preliminary restructuring plan has been turned down by its bank lenders.

¨      Keen rise in SOR post unexpected US election results. There was a strong rise in the short-to-mid SOR curve, with the 2y rising by 15.3bps to 1.47% while the 5y rose by 24bps to 1.97% as the SGD weakened by over 2% to the USD to close at 1.412 after the surprise results of the US Presidential election. Looking ahead, investors will be eyeing the Sept Retail Sales (15-Nov) and Oct Non-oil Domestic Exports (17-Nov).

MYR CREDIT MARKETS

¨      Economic growth gained pace in 3Q. Malaysia’s 3Q GDP expanded at faster pace of 4.3% YoY, from 4.0% YoY in previous quarter, supported by continuous growth in private expenditure (+6.0% YoY) and rebounce in net export (+5.9% YoY). Current account surplus widened to MYR6.0bn in the same quarter (2Q16: MYR1.9bn), offsetting the net outflow of MYR6.3bn in the financial account in the quarter. The net outflow was seen in the bond market with the foreign holdings in the government bonds (MGS/GII/SPK) decreased for the first time this year in Sep by MRY5.6bn amid the uncertainties in the global environment. However, the foreign players have returned to the domestic market in Oct, adding MYR6.6bn in the govvies to MYR214.8bn or 34.4% of the total govvies outstanding.  

¨      Emerging markets suffer post-Trump victory. The unexpected result from US Election has led to rout in the regional currencies and government bonds where Trump’s trade protectionism rhetoric could pose a concern to exporting countries. Similarly, the MYR fell 2.3% WoW to 4.2945/USD, MGS curve steepened with the 10y spiked 32bps WoW to 3.94%, while Malaysia CDS also increased to 28bps WoW to 155.8bps. Market to focus on the auction for MYR3bn 7y GII Reopening today, which could be the yardstick for investors’ appetite before the MYR11bn GII maturity on the 15-Nov. The WI was seen traded at high of 4.01% last Friday, from 3.78% in the previous day.

¨      MYR1.9bn issued last week, YTD issuance breached MYR78bn. YTL Corp (AA1) tapped the market with MYR1bn issuance, 10y-20y at 4.63%-5.15%. Elsewhere, Maybank (AAA) priced MYR600m 15nc3 Senior at 4.20% with quarterly coupon payment; while we also Yinson (NR) issued MYR250m 2-3y at 5.25%-5.75%. Corporate flows were 33% slower at MYR2.2bn mainly in belly-to-long-end of the infrastructure/utility and quasi-government bonds such as Cagamas, Celcom Networks, DanaInfra. Prasarana, BFB and PASB.