Credit Market Watch: Summary for week ending 1-Jul

·         MYR Credit:

Ø  MGS rallied strongly with yields falling by 14-20bps WoW along the 5y15y. PDS yields also tightened WoW and market activity picked up significantly, recording MYR5.1b total trading volume mainly focused in high grades.

Ø  2H16 Outlook: Domestic factors are supportive of a mild strengthening of MGS and our target for the 10y MGS yield is revised down to 3.65% end-3Q16, assuming an OPR cut in 3Q16 and deferral of the FFR hike to 1H17.

Ø  Banking industry: In May 2016, loan growth was marginally lower at 6.2% YoY (6.3% in Apr) while loan applications remain subdued at 1.3% YoY (0.3% in Apr) and loans approvals contracted again by 13% (-19% in Apr). LDR was relatively unchanged MoM at 87.6%, while GIL rose higher to 1.65% vs 1.60% in Apr.

Ø  Tan Chong Motor: Rating was downgraded to A1/stable from AA2/negative by RAM as intense competition and softer auto demand weakened the company’s operating financial performances, and the weaker profitability increases its sensitivity to a weaker MYR.

Ø  WCT Holdings: Cancelled its JV with UEM Sunrise likely due to pricing issue. This will slow down WCT’s deleveraging efforts, though we understand that the company is in the process of monetizing some other assets.

Ø  Relative value: Prasarana 12/22 seems to offer as it last dealt at 4.09%, 4bps outside our fitted line and 8bps higher than Danainfra 2/23.

·         Asian USD Credit:

Ø  UST curve lowered further with the 2y10y down by 4-12bps WoW on continued demand for safe-haven assets. Asian credits also rallied, with JACI composite -16bps, JACI IG -14bps and JACI HY -26bps WoW.

Ø  Rating changes: Singapore’s banking system has a negative outlook from Moody’s as weaker international trading and softer domestic economic growth weakens business conditions for Singapore banks.

·         CDS: EM Asia 5y CDS spreads all tightened led by Indonesia -15bps, followed by Malaysia -13bps while elsewhere was -6bps to -8bps WoW.