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The US economy continued to run hot in August. Positive economic
data and strong corporate earnings results provided support to
sentiment and valuations. While rising prices remained a recurring
topic, Fed Chairman Jerome Powell reiterated comments about
inflation being transitory. Furthermore, while no firm tapering
timeline was announced at the Federal Reserve's annual economic
symposium, the possibility of it starting by year-end was
mentioned.
Asia's economies, on the contrary, lost momentum in July. The
regional IHS Markit PMI† fell to 48.5 in July from 52.2 in June. In
particular, China's economy saw its official composite PMI‡ dropped
to 48.9 in August from 52.4 in July. Chinese businesses came under
pressure this month as they battled against COVID-19 outbreaks and
restrictions, high input prices and declining exports.
Returns of USD bonds in Asia turned positive in August, with the
iBoxx USD Asia ex-Japan index rallying +1.04%. The index yield fell
16 bps to 3.20% and its credit spread narrowed 22 bps to 203
bps.
This month, Asia USD corporates outperformed sovereigns by
0.33%. High grade (+0.76%) delivered gains across the A and
BBB-rated segments. High yield (+2.05%) rebounded from last month,
with the losses in the CCC and 0-1yr bucket attributed to bonds
issued by the China Evergrande group, the heavily indebted property
developer in China.
In the corporate space, Financials led the gains while Consumer
Services and Health Care underperformed.
China USD bonds (+1.42%) rallied, with high yield outperforming
high grade, returning 2.39% compared to 1.08%.
The China Real Estate sector (+2.42%) surged after falling for
the past two months. At the end of August, bonds from China
Evergrande group constituted less than 0.80% of the overall index
or less than 0.41% of the China sub-index.
China LGFV (+0.88%) outperformed this month, with both its high
grade (+0.46%) and high yield (+2.11%) segments yielding positive
returns.
September 2021 Rebalance
Thirty-four new bonds entered the index in September. Mainland
China and India added 29 new issuances, making up over USD 12.4
billion (or close to 45%) of the new notional.
Of the 23 bonds removed from the rebalance:
Eight (5 from China and 1 each from India, Indonesia and
Singapore) were either called, redeemed or repurchased
One bond from Granda Century Limited, a subsidiary of Suning
Appliance Group in the China consumer services sector, was traded
flat
Four fallen angels and one rising star, all from China, were
captured this month. Three of the four fallen angels are issued by
a subsidiary of China Huarong Asset Management Co. Ltd.
Please refer to the full commentary for a breakdown of this
month's insertions and deletions, and a list of fallen angels and
rising stars recognised in 2021.
Post rebalance, the overall index duration rose 0.03 to 4.52
years. Markets with the most noticeable change in duration were
Singapore (+0.76 years) and India (+0.10 years).
In Singapore, Temasek Holdings issued 3 new bonds in August,
with respective maturities of 10, 20 and 40 years, and a combined
notional of USD 2.5 billion. Meanwhile, new mid to long-dated
issuances from India that spanned multiple sectors were added to
the index at an aggregated notional size of USD 4.0 billion.
Posted 06 September 2021 by Wilson Mak, Analyst - Indices, S&P Dow Jones Indices
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