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Asian USD IG bonds show superiority over the US Treasuries - Dec 20, 2024

  • 朱荣熙

    朱荣熙


Asia Investment Grade (IG) USD bonds continued to demonstrate more resilience performance compared to US Treasury bonds, which have not shown a significant rebound even as the MOVE index has substantially declined back to its year-low levels after the US presidential election. This trend may be attributed to ongoing investor concerns regarding the uncertainties that President-elect Trump may bring starting in January. In contrast, investors increasingly view Asia IG bonds as a safe choice, as evidenced by the narrowing spread against US Treasury bonds, which has reached the lowest level in the last decade. The spread may have room to tighten further as China shifts to a “moderately loose” monetary policy and expands fiscal spending, likely leading to lower local bond yields. This environment enhances the attractiveness of Asia IG USD bond yields. Diversifying a bond portfolio with Asia IG USD bonds may not only reduce volatility but also enhance returns. For those interested in including Asia IG bonds in their portfolios, our Premia J.P. Morgan Asia Credit Investment Grade Bond ETF, featuring a low expense ratio of just 0.23% per annum, stands out as a viable investment vehicle.

Resilience of Asian USD Investment Grade Credit - Nov 27, 2024

  • 研究团队

    研究团队

Asian US dollar IG credit has been outperforming the US IG and EU IG both year-to-date and over a three-year horizon due to several favourable factors, including attractive yields and a supportive issuance dynamic amongst Asian issuers.


With the election settled, among the many policies laid out in Trump 2.0, two key issues that have concerned global investors are the US debt outlook and the impact of tariff to global growth, particularly in European countries.


Since election settled in early November the market focus has shifted to the projected debt level of the US government. Back in March 2024, the US Congressional Budget Office (CBO) published a report on the long-term budget outlook for 2024 to 2054, highlighting that the US debt-to-GDP ratio is projected to reach a staggering 200% by 2050. This increase will be driven by rising spending programs, which will require the government to issue more US Treasuries. The rising debt trend, coupled with recently released strong U.S. economic data, has caused major concerns among global investors, pushing U.S. yields higher across the curve recently.


In fact, over the last few years when yields increase, it become less appealing for Asian issuers to issue new debt in US dollars. As a result, when yields rise, the supply of Asian dollar credit diminishes, leading to tighter credit spreads and further enhancing the performance of existing bonds. For instance, during mid-November China issued USD denominated government bonds at a very tight spread, which began trading with a negative spread.

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Currently, the rate cut cycle has begun, and yields have been trending lower, which could enhance the attractiveness of Asian dollar credit even further. However, looking ahead, expectation for future yields are characterised by volatility. While the recent appointment of Scott Bessent as the new US Treasury Secretary is viewed positively for the bond market – suggesting potential fiscal restraint – investors remain concerned about the trajectory of the US fiscal deficit and projections on the Debt-to-GDP. This backdrop creates a climate of uncertainty among investors, who may increasingly prefer the relative stability offered by Asia dollar credit amid these challenges.

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On the tariff front, the broad tariff would likely erode Eurozone GDP by approximately 1% as the biggest European countries such as Germany and France are also the most exposed to trade. Analysts from Goldman Sachs and JPMorgan are forecasting a fragile recovery in the Euro area, which would lead to further ECB rate cuts. While the duration would benefit EU IG in light of the rate cut, some of the gains may be offset by the heightened downgrade risks with the lower growth outlook and sluggish activity as reported by Fitch Ratings. Return is further eroded for dollar-based investors as a lower ECB policy rate will likely lead to depreciation in the euro and therefore losses due to currency exposures. Recently, we observed some of this trend as the Euro weakened from ~1.10 to ~1.05 against the US dollar in just a month, currency effect detracted almost 4.0% from returns during that period, and more rate cuts are expected to come.

Given these dynamics, we believe Premia J.P. Morgan Asia Credit Investment Grade USD Bond ETF (9411 HK) is a better opportunity set and a very cost efficient allocation tool with total expense ratio of only 0.23% p.a. and is not subject to US withholding tax. The ETF consisted of high-quality USD bonds by investment grade sovereign, quasi-sovereign, and corporate issuers from Asia ex-Japan region:

-          Comparing to both US IG and EU IG, JACI IG’s lower duration and higher yield presents a better risk trade-off between yield and duration.

-          Comparing to US IG, JACI IG’s lower new issuance should provide a better price dynamic while maintaining a higher yield

-          Comparing to EU IG, JACI IG provides 2% higher yield and without the currency risks

 

To facilitate investor access primary market liquidity, we have also worked with our business partners to keep the creation/ redemption fee to only US$250 per trade and creation/ redemption size to 50,000 units only (~US$500,000) which are a fraction of typical levels for other USD credit bond ETFs.


BBG Ticker

Abbreviation

Long Name

JPEIJAIG Index

JACI IG

J.P. Morgan Asia Credit Index -   Investment Grade in USD

LBUSTRUU Index

US IG

Bloomberg US Aggregate Total Return   Index in USD

I02503US Index / LP06TRUU Index

EU IG

Bloomberg Pan-European Aggregate  Total Return Index in USD (unhedged)

SBWGU Index

WGBI

FTSE World Government Bond Index USD (unhedged)

IDCOT20 Index

UST 20Y

ICE US Treasury 20+ Year Bond Index USD

IDCOT7 Index

UST 7-10Y

ICE US Treasury 7-10 Year Bond  Index USD

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Historical context on the coming CNY 10 trillion China bond issuance - Nov 11, 2024

  • 研究团队

    研究团队

Long-term market rates, such as 10y/30y CGB yields, drifted lower in Oct after the sharp rise in late Sep. But short-term bond yields moved sideways, resulting in modestly flatter yield curves. One most frequently asked question on China rates is the size and composition of the fiscal package and its impact on rates.

 

To provide a bit more colour, recent news reports of additional RMB10 trillion to be issued over next few years. This includes RMB6 trillion raised by selling special sovereign bonds over three years starting in 2024, and RMB4 trillion raised through local government special bonds over the next five years. To provide context for how much RMB6 trillion represents, since 2021, the issuance of China Treasuries (including special sovereign bonds) has increased from ~RMB6.7 trillion to ~RMB11 trillion in 2023. As of September 2024, a total of ~RMB9.7 trillion China Treasury bonds has been issued; however, yields declined on both the long and short ends of the yield curve.

 

This trend suggests a strong domestic market capacity to absorb the new RMB6 trillion bond issuance.  The robust demand for Chinese Treasuries is attributed to several factors such as : (1) Aggressive monetary easing by the PBOC; (2) PBOC’s active interventions such as the RMB200 billion net purchase during October and outright reverse repurchase agreements with primary dealers; (3) increasing retail investor acceptance of CGB as safe assets versus bank deposits given the low bank deposit rates.

 

With banks as anchor investors, long-term government bond yields tend to remain relatively stable compared to short-term yields. Curve shape therefore depends on the PBOC's liquidity management in the interbank market. A larger-than-expected approval of government bond issuance quota for the rest of the year is more likely to drive front-end rates higher, resulting in a bear flattener.

 

In light of this bond issuance landscape, and also the higher likelihood of RMB taking a more steadily managed depreciative path under Trump 2.0 to booster exports, Premia China Treasury & Policy Bank Bond Long Duration ETF (9177 HK) remains a good trade which does not hold special sovereign bonds, meaning its maturity distribution will not significantly increase to the 30-years and 50-year maturity bonds due to the special bond issuance.


Opportunities beyond TSMC in Taiwan - Oct 31, 2024

  • 朱荣熙

    朱荣熙

While TSMC remains the focal point of the Taiwanese equity market and AI-themed investments, there are other Taiwanese stocks that have outperformed TSMC over the past year. Notably, a few companies within the FTSE TWSE Taiwan 50 30% caped index have surpassed TSMC’s performance. One of the standouts is Asia Vital Components Co. (AVC), which has seen remarkable growth of over 108%. AVC specializes in a range of thermal solutions, including liquid cooling products that have become essential for maintaining CPU temperatures in AI servers. As CPU power density increases due to the rise of generative AI, traditional air-cooling systems are becoming inadequate. According to Goldman Sachs estimates, the penetration of liquid cooling technology is projected to rise to 20% in 2025, up from just 4% in 2022. This trend is likely to continue as AI development drives the adoption of liquid cooling in data centers and server markets, providing not only thermal efficiency but also reducing electricity costs. The payback period for liquid cooling systems can shrink to just 1 to 3 years, depending on electricity costs. The market hype and extensive news coverage surrounding TSMC may overshadow other opportunities amid this technological shift and other emerging trends. Investing in a broad-based portfolio could provide better risk-adjusted returns. We believe our Premia FTSE TWSE Taiwan 50 ETF, which focuses on Taiwanese equities market - an important part of the ongoing AI development supply chain and comprises nearly 70% information technology stocks - will be a diversified approach for investors to capitalize on the AI theme.


Asian currencies surging with a promising outlook - Oct 09, 2024

  • 赖子健

    赖子健 , CFA

    CFA

Most Asian currencies experienced significant movement in Q3 following the US Federal Reserve's confirmation of a rate cut in mid-September. The Malaysian ringgit led the region, climbing 14.4% against the dollar during this period, marking its best performance on record. Analysts attribute the ringgit's strength to narrowing interest rate differentials with the US, improving trade performance, and attractive asset valuations. Sumitomo Mitsui Banking Corp noted that Malaysia’s current account surplus, a neutral stance from the central bank, and stable economic fundamentals are supportive of the currency. Additionally, foreign fund flows have been favorable, with global investors pouring a cumulative USD 2.5 billion into the country’s bonds in July and August, along with USD 1.2 billion in local equities since the beginning of July. The Thai baht also reached its strongest level in 30 months, appreciating 13.4% against the dollar last quarter. This performance was driven by a stabilizing domestic economy and improving political conditions. Several other Asian currencies, including the Chinese yuan and Indonesian rupiah, are also showing appreciation against the dollar following robust quarterly performances. If the Fed continues its rapid rate cuts as the market expects, there should be further opportunities for Asian currencies to strengthen.


Vietnamese dong may continue its strengthening - Sep 17, 2024

  • 赖子健

    赖子健 , CFA

    CFA

    


In August, the Vietnamese dong appreciated by 1.56% against the US dollar, marking its strongest gain in 20 months. HSBC strategists attribute this strengthening to several factors: recent US Consumer Price Index (CPI) data, which increased the likelihood of a Federal Reserve rate cut in its September meeting, and Vietnam’s trade surplus of USD 4.5 billion for the month—the highest in four years. Looking ahead, the dong’s continued strength is supported by several favorable conditions, including a potential accelerated rate cut cycle by the US, narrowing negative spreads between the dong and dollar interbank rates, ongoing net foreign exchange inflows from the trade surplus, steady foreign direct investment, and consistent remittances. With the strengthening currency and robust economic fundamentals, the Vietnamese stock market performed well in August, with the S&P Vietnam Core Index rising by 3.73%. Real estate stocks stood out as three amended laws—Land Law 2024, Housing Law 2023, and the Real Estate Business Law 2023—took effect last month. The market is now anticipating the resolution of the "prefunding" issue, which is a crucial factor for potential market upgrades by major index providers.

China's property price decline slowing - Aug 29, 2024

  • 研究团队

    研究团队

Chinese housing market is showing signs of improvement with policy support. In July, new home prices in China experienced a modest decline, with a decrease of 0.65% month-over-month, which was slower than the drop observed in June. Among the tier-one cities, Beijing was the only one to witness a mild decline in new home sales. According to data from China Real Estate Information Corp., Guangzhou saw a significant increase, with sales volume rising by 31,696 sqm to 132,617 sqm, while Shanghai and Shenzhen recorded a gain. China is considering allowing local governments to issue special bonds to buy unsold homes. Over 10 city governments have also relaxed or eliminated new-home price guidelines to stimulate demand. Beijing's housing bureau launched a pilot program last month to encourage homeowners to swap old homes for new ones. Xiamen has recently amended its property policies, enabling individuals who own property in the city and meet specific criteria to apply for residency. In Hong Kong, the MPFA will be relaxing investment regulations to permit MPF funds to invest in Real Estate Investment Trusts (REITs) listed in Shanghai and Shenzhen when they are added to the Stock Connect scheme. Developers are also showing signs of relief, with Longfor Group repaying ~RMB 2 billion to bondholders whilst Kaisa announcing substantial progress in restructuring its offshore debts. Investors interested in the recovery of the China property market may consider investing in a basket of bonds, such as our Premia China USD Property Bond ETF.


China government bonds stay bullish - Jun 25, 2024

  • 研究团队

    研究团队


China’s 10-year sovereign bond futures reached a record high, fueled by a buying frenzy for government debt. The strong move came after data showed global investors boosted their holdings of Chinese debt to a record level last month. Speculative buying from retail investors, demand from fund managers riding a wave of inflows, and purchases by companies seeking higher yields than regular bank deposits are also fueling the rally. One-year deposits at China’s largest banks pay a record-low of just 1.45%. Consequently, China’s total deposits slumped by RMB 3.9 trillion in April and have yet to recover in May, with a significant proportion of funds rushing into higher-yielding fixed-income assets like government bonds. Some traders are betting on further stimulus measures to weigh on yields, as China’s consumer prices rose less than expected in May and factory prices fell for the 20th consecutive month. Shanghai Securities News reported that there is room for China to cut the reserve requirement ratio (RRR) for banks, as well as interest rates, in the third quarter. China needs to inject an additional RMB 500 billion of liquidity this year, which is equivalent to a 25-basis-point RRR cut. According to Natixis and GS, China’s 10-year yield could fall to between 2.18% and 2.2% by the end of the year, from its current level of around 2.25%.


Vietnam's domestic demand remained strong in the stock market - Jun 11, 2024

  • 赖子健

    赖子健 , CFA

    CFA


Vietnam equities retested the year-to-date high despite the market saw the highest monthly net foreign outflow of USD 747 million in May. Overseas investors have net sold the market for four consecutive months. The disparity in interest rates, monetary policies, volatile exchange rates and political fluctuations has significantly influenced foreign investors' actions. This has led to global capital flow realignments, with markets experiencing slower growth, currency devaluations or being classified as frontier markets witnessing substantial capital withdrawals lately. That said, domestic demand remained strong and absorbed more than the outflows. Data from the Vietnam Securities Depository reveals that the number of domestic securities accounts increased by over half a million in the first four months of the year. As of April 2024, Vietnam had more than 7.7 million individual securities accounts, equivalent to approximately 7.7 percent of the population. Fundamentally, the country’s economic growth remains intact, supporting the equity market well, especially as the process of upgrading the market is being actively pursued. If measures aimed at upgrading Vietnam’s stock market are implemented more rigorously, it will eventually attract foreign capital inflows to ride the wave.


Malaysia's stock market cap surpassing MYR 2 trillion - May 21, 2024

  • 赖子健

    赖子健 , CFA

    CFA


Malaysia’s stock market reached a milestone as it hit MYR 2 trillion in market capitalization for the first time earlier this month. The benchmark index FTSE Bursa Malaysia Kualua Lumpur Composite Index also surpassed the psychological barrier of 1,600 points for the first time in two years, alongside the rising market turnover. The current uptrend is broad-based, with positive momentum observed across all sectors. Some analysts believe the market is on the cusp of a sustainable bull run. Since its peak in 2018, Malaysian equities have been grappling with a prolonged downtrend, largely attributed to political instability stemming from frequent changes in administration and a lack of economic policy continuity. This trend was exacerbated by the rate differential resulting from the US Fed’s rate hikes. That said, Malaysia stands out as the top performer among ASEAN stock markets so far this year, attributed to strong support from local investors and the resurgence of foreign funds in May. With the advent of the Madani administration, marked by the rollout of new economic policies like the National Energy Transition Roadmap and the New Industrial Master Plan 2030, the nation sent a resounding signal to global investors that it was open for business. Malaysia equities account for about 26.9% of our Premia Dow Jones EM ASEAN Titans 100 ETF (2810.HK).