Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Outlook for Asia credit markets and ESG issuance trends
31 Plays3 years ago
With increasing US interest rates, inflation, and the pandemic, what is the market outlook for Asia credit markets and what opportunities are brought by ESG bonds in the region to fixed income investors? In this episode, Keith Chan, Head of Asia Credit Research HSBC, and Louisa Lam, Director of Asia Credit Research HSBC, share market insights and trends. Read more here: https://www.gbm.hsbc.com/en-gb/feed/accessing-capital/asia-credit-green-shoots
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Introduction to HSBC Global Viewpoint
00:00:05
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:16
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:19
Speaker
Thanks for listening, and now onto today's show.
Discussion Kickoff with Keith Chen and Louisa Lam
00:00:22
Speaker
Welcome to HSBC's Global Viewpoint.
00:00:25
Speaker
My name is Keith Chen, HSBC's Head of Asia Credit Research, and I'm pleased to be joined by my colleague today, Louisa Lam, who is Director of Asia Credit Research.
00:00:35
Speaker
Hello, Louisa.
00:00:36
Speaker
Hi, Keith.
00:00:37
Speaker
Great to join you.
00:00:38
Speaker
Great to see you.
Impact of US Treasury Yield on Asia Credit Market
00:00:39
Speaker
So in this podcast, we are going to talk about the challenges faced by Asia Credit market to date.
00:00:45
Speaker
And we are going to highlight ESG bonds that stands out both in terms of issuance activities and the relative performance.
00:00:53
Speaker
To begin with, Asia Credit has a difficult first half of the year on the back of the huge uptick in US Treasury yield, which caused stringent of issuance activities in this part of the world.
Mainland China Issuers and Net Redemptions
00:01:06
Speaker
Specifically, gross issuance activities for Asia dollar bond space was down by more than 40% year over year.
00:01:15
Speaker
In particular, from a net issuance perspective, the Asia dollar bond space shrinks by US$5 billion in the first half of the year.
00:01:24
Speaker
That means that we have more redemptions than issuance in the first half of the year.
00:01:29
Speaker
mainland China issuers, which used to contribute 70-85% of the region's net issuance activities between 2015 and 2019, they all turned into net redeemer of bonds in the first half of the year with an aggregate US$21 billion of net redemptions.
Revised Forecasts for Asia Dollar Bonds and ESG Performance
00:01:49
Speaker
Primary market for high-yield corporates in Asia is largely shut and dysfunctional with net redemptions witnessed across major sectors.
00:01:58
Speaker
In this backdrop, we revised our 2022 full-year gross issuance forecast of Asia dollar bonds to a range of $200 to $235 billion that compared with the $110 billion gross issuance that we witnessed in the first half of the year,
00:02:15
Speaker
We also expect in the second half of the year, primary market to be shut to most high-yield corporates in Asia.
00:02:23
Speaker
At the lower end of our issuance forecast, we could foresee up to US$50 billion of net redemptions for mainland China issuers for the full year of 2022 that equates to US$30 billion of net redemptions in the second half of this year.
00:02:41
Speaker
ESG bonds really stand out, both in terms of issuance activities and the relative performance versus conventional dollar bonds in the Asia space.
00:02:52
Speaker
Luisa, can you shed more light on this particular point?
00:02:55
Speaker
Sure, Keefe, green bonds are booming in Asia, and definitely they are one of the few bright spots in the still struggling Asia US dollar bond market.
00:03:05
Speaker
In first half of 2022, a total of $65.5 billion of new green social and sustainability bonds, in another word, ESG bonds, were issued.
00:03:18
Speaker
It accounts for about one-third of the total US dollar bond issuance in the Asia-Japan credit universe, compared to 22% in full year of 2021 and just 10% in 2020.
00:03:27
Speaker
We expect this percentage to persist for the rest of the year.
00:03:36
Speaker
Investment-grade Asia-USD bond, ESG bonds, have outperformed their conventional peer, indeed, across market, sectors, tenors, and credit rating.
00:03:47
Speaker
Compared with those conventional bonds, the ESG bonds actually tend to have stronger investor stickiness, shorter duration, and relatively better disclosures.
Role of ESG Bonds in Asia
00:03:59
Speaker
In higher yield space, however, they are exposed to same market volatilities as their conventional peers, as overall credit concerns have overwritten ESG considerations.
00:04:10
Speaker
This was especially true in the China property sector.
00:04:15
Speaker
So the question that a lot of investors will ask from time to time is, who are the main issuers in the ESG dollar bond space in Asia, and where do the money raise go?
00:04:25
Speaker
Banks and financial institutions are the biggest ESG bond issuer, followed by renewable, utility, and property companies.
00:04:35
Speaker
The proceeds of these bonds are mostly direct to the projects in development sectors, such as renewable energy,
00:04:43
Speaker
green buildings and infrastructure, as well as measures aimed at increasing energy efficiency.
00:04:50
Speaker
All these projects are in line with the transition goals of governments across the region, especially on the carbon neutrality, or in other words, net zero.
00:05:01
Speaker
Interesting.
00:05:02
Speaker
Are there any concerns from your perspective
00:05:06
Speaker
Some disclosures and high information transparency are required to minimize the risk.
Improvements in ESG Disclosures and Government Support
00:05:12
Speaker
Issuers are now required to release a set of pre-issurance documents to specify their use of proceeds and proposed ESG projects.
00:05:21
Speaker
And after the bond issuance, post-issurance documents are required to list out the actual allocation of the proceeds and, if possible,
00:05:30
Speaker
their environmental impact result from the projects, such as how much carbon emissions is reduced or avoided and how much energy is saved.
00:05:41
Speaker
For Asian companies, there is still room for them to improve in terms of disclosures, but we are definitely seeing their progress.
00:05:50
Speaker
I would say we believe that ESG labor bonds will be the key driver in Asia-US dollar bond market.
00:05:57
Speaker
Despite recent market volatility, this is highly supported by governments across the region.
00:06:03
Speaker
Indeed, the governments are taking measures to facilitate capital's integral project as well.
00:06:10
Speaker
They have set up green taxonomies to standardize and enhance market standing.
Positive Outlook for Asia Investment-Grade Dollar Bonds
00:06:16
Speaker
For example, China, they have published their own Green Bond Project Catalogue last year, and Asian countries are putting together their own set of green taxonomies as well.
00:06:27
Speaker
So Green Bond Market is definitely one of the key projects and the channel that they are looking after.
00:06:34
Speaker
Thanks, Luisa.
00:06:35
Speaker
That's pretty promising from my perspective.
00:06:38
Speaker
Looking ahead in third quarter of 2022, we believe the stars are aligned for improvement in performance, particularly towards the Asia investment-grade dollar bond space.
00:06:48
Speaker
We look into various factors in terms of investor positioning that has been light as we speak.
00:06:55
Speaker
Valuation has been at depressed level, particularly towards the high-yield spectrum.
00:07:00
Speaker
Sentiment has been weak, if not the weakest in years.
00:07:04
Speaker
Regulatory backdrop, on the other hand, is getting into more benign stage.
Conclusion and Subscription Reminder
00:07:08
Speaker
And most importantly, policy easing is to come across various sectors in the Chinese economy.
00:07:16
Speaker
So that's all we have for the time of today.
00:07:18
Speaker
We hope you enjoy our conversation.
00:07:21
Speaker
If you are interested, please speak to HSBC representative.
00:07:25
Speaker
Thank you.
00:07:27
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:07:30
Speaker
We hope you enjoyed the discussion.
00:07:32
Speaker
Make sure you're subscribed to stay up to date with new episodes.