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Value, opportunity and liquidity in the Asia high yield market

A macroeconomic overview of the Asia High Yield Market
02 April 2020
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    Key takeaways

    • While the COVID-19 global pandemic has had a bigger negative impact on financial markets than anything since the global financial crisis in 2007/2008, we believe these situations can throw up amazing opportunities
    • We believe that the rate of defaults now discounted by the Asia high yield market is significantly higher than the range of likely outcomes
    • Our own bottom up research indicates a high yield default rate for Asia of 2.4% (horizon 12 months) based on our central scenario of a modest recovery in the general economic outlook in three months’ time, while we forecast a default rate of 6.3% in a worse case where the pandemic shows no sign of improvement for at least six months
    • Our bottom up process is dedicated to avoiding severe credit deterioration and default, which should reduce the risk of capital loss further
    • Our sector selection would also tend to be underweight those sectors and countries/regions where we believe the default risk is the highest
    • Although liquidity has been difficult in markets in the last few weeks, there are also steps we have taken to ease these risks by diversifying our portfolios, maintaining holdings in more liquid bonds and ensuring the structure of our funds remains consistent with daily dealing