Fixed Income
  • Asian Fixed Income: Indonesian Sovereign Bonds Were the Big Winners in 2017

    Source: Michele Leung
    Date Submitted: 11 Jan 2018
    Views: 15
    Downloads: 0
    With the growing appetite for emerging market debt and in the hunt for better yields, Indonesian sovereign bonds have been popular this year.
  • Indian Banks: 1HFY18 Review and 2018 Outlook

    Source: Ang Ben You, David Marshall
    Date Submitted: 10 Jan 2018
    Views: 10
    Downloads: 0
    • Indian banks reported lower annualized aggregate profitability in 1HFY18 due to weaker net interest revenues and higher provisions related to RBI's two lists of accounts which are slated for insolvency resolution.
    • The government's INR 2.1 tn recapitalization package is a game changer and has largely removed the capital uncertainty banks have been facing.
    • For banks under our coverage, our rough calculation reveals a capital requirement that is ~64% of the total amount pledged (INR 2.1 tn) by the government under our scenario analysis which we think is reasonable but not especially harsh.
    • Asset quality is already showing signs of stabilization and improvement but the recapitalization plan should also help support this picture into 2018 as banks find greater impetus to take haircuts and resolve NPAs on their books.
    • The expectation of a substantial pick up in credit growth due to the capital pledge is logical but we remain skeptical as the plan will be spread over two years and risk aversion will also likely  take some time to abate.
    • Removing capital concerns will help with bank valuations and in tandem with the recently introduced "Alternative Mechanism" (AM), should help with banking consolidation.
    • IFRS 9 implementation should also be easier to swallow with with more capital and a phased implementation of the CET 1 impact. 
  • Asian High Yield Outlook: 8 Themes for 2018

    Source: Sandra Chow, CFA, Cheong Yin Chin, CFA, Lakshmanan R
    Date Submitted: 26 Dec 2017
    Views: 32
    Downloads: 0
    • Asian high yield is too expensive" lament many investors we meet. We agree. We propose a more defensive strategy next year. Current Asian high yield spreads offer little compensation for the incremental credit risk compared to investment grade, or to US high yield. We suggest a 'barbell' approach in terms of credit quality: combining a core portfolio of defensive names with a few higher-beta credits to boost returns. 
    • Credit quality is generally improving or stable among the names we cover.  But this does not justify the extent of the Asian high yield rally. Technical factors - the imbalance between demand (large inflows into emerging markets and the fabled 'Chinese onshore bid') and supply (at record levels, but still not enough to dent demand) - have been the key reason.  As supply risk increases, we are concerned that the balance will tip away from the market's favour. 
    • We highlight 8 themes that could drive the Asian high yield markets next year.  These include: 1) the effect of China's regulators and China's domestic bond markets on offshore bond supply; 2) LGFV issuance and maturity walls; 3) China's capacity cuts and their impact on commodity prices; 4) Asian high yield bond supply risk; 5) China's property market slowdown; 6) few distressed opportunities; 7) the reach for yield into frontier markets and riskier credits; 8) Fed surprise risk.  
  • 2018 Global Market Outlook: Step Forward, Look Both Ways

    Source: State Street Global Advisors
    Date Submitted: 14 Dec 2017
    Views: 1465
    Downloads: 44

    As we move into 2018, we believe macroeconomic conditions will support risk assets. Global growth is becoming more evenly distributed and is expected to return to its historical trend rate of 3.7%, while inflation remains muted.

    There is, however, a tension between our positive outlook for 2018 and a number of near-term and longer-term uncertainties. As the US equity bull market enters its ninth year—the second longest on record—some investors are understandably concerned about the next pullback.

    With this backdrop in mind, we think investors should look both ways—that is, that they should take a more cautious and risk-aware stance—as they step forward to make the most of the opportunities that synchronized global growth will likely offer in the year to come.

  • Asian Fixed Income: China Was The Worst-Performing Country In The Pan Asian Bond Market

    Source: Michele Leung
    Date Submitted: 12 Dec 2017
    Views: 25
    Downloads: 0
    China’s lackluster performance has made it the worst-performing country in the Pan Asian bond market this year. 
  • An In-Depth Look at the Dow Jones Sukuk Indices

    Source: Michele Leung, James "J.R." Rieger
    Date Submitted: 30 Nov 2017
    Views: 41
    Downloads: 3
    Market participant appetite for sukuk remains, and there is a tendency to favor higher-yielding and longer-tenor sukuk.
  • Predicting Credit Rating Changes Conditional on Economic Strength

    Source: Julia Sawici, Jun Zhou, Yonggan Zhao
    Date Submitted: 17 Nov 2017
    Views: 57
    Downloads: 0
    Predicting Credit Rating Changes Conditional on Economic Strength
    Julia Sawicki, Jun Zhou and Yonggan Zhao
    Extended Abstract 
    This paper addresses a fundamental credit analysis question: what is the probability that a firm's rating will be upgraded, downgraded or unchanged for a specific rating cohort and state of the economy? We develop a new structural model for predicting credit rating changes using both financial accounting variables and macroeconomic indicators. Economic strength (contraction / expansion) is predicted with a set of systematic factors in a Markov regime-switching model. Measures of firm-specific business and financial risk are used in a multinomial logistic regression model to estimate transition probabilities (upgrade, stay or downgrade) conditional on the predicted state of the economy. Tests of statistical differences in probabilities indicate that the likelihood of upgrade and downgrade are asymmetric across regimes; general probability of a downgrade during a recession is nearly twice the expansion downgrade probability; up-grade probabilities are relatively stable. 
    In addition to developing a sophisticated predictive model, our work sheds light on a major (and poorly-understood) concern related to broad economic ratings' determinants: the pro-cyclical nature of credit ratings. Ratings that are particularly harsh (lenient) in weak (strong) economic conditions can exacerbate tightening (loosening) of credit, contributing to volatility and uncertainty in financial markets. This potential destabilizing impact of ratings changes draws considerable attention of regulators and policy makers. Our estimates of upgrade and downgrade probabilities in expansions and recessions provide insight at the policy level and a valuable analytical tool for investors. 
    Our model is an important contribution to the literature. Research devoted to identifying the determinants of ratings has focussed primarily on entity-specific measures of operating performance and financial condition, such as profitability and leverage. While link between credit risk and macro-economic is clear (and empirical evidence points to the potential to improve ratings predictions by modelling systematic conditions), empirical work has proved wanting. The standard approach using linear regression analysis is not appropriate for predicting changes in credit ratings.[1] Our model captures macroeconomic states with regime-switching model that offers two important advantages: results are not specification dependent and the model is forward-looking in that ratings transitions are predicted contingent on a prediction about the state of the economy. Forward-looking investment decisions are based on future credit quality, including estimates of how likely a firm's rating will be upgraded or downgraded under various economic states. The ordered logistic regression analysis with the economic strength conducted in this paper provides this information. 
    Tests of statistical differences indicate that the transition probabilities in contractions are different from those in expansions. The nature of these differences largely depends upon whether the issue is investment or non-investment grade. In general, it is much easier for junk bonds to be upgraded than investment grade bonds, regardless of economic state. This is not the case with downgrades. Notwithstanding CCC and below, investment and non-investment grades share similar downgrade probabilities in expansion (ranging from 2 to 4 percent). The probability of being downgraded jumps for non-investment grade issues in contractions to a range of 5 to 11 percent. Comparing transition probabilities between states and within rating we find that investment grade issues tend to exhibit similar upgrade probabilities in both expansion and contraction, whereas downgrade probabilities are somewhat higher during contractions than during expansions. Regarding non-investment grade issues, it seems that the 'dogs' get a boost during expansions with a much higher probability of being upgraded. The differences become very pronounced as the rating falls (for, example CCC contraction upgrade probability of 3.8 percent triples to 14 percent in an expansion). The chance of a downgrade during contractions is much higher than in expansions, almost doubling in many cases. 
    While these tests provide strong evidence consistent with a procyclical nature of rating changes, an important question remains. Does the evidence point to harsher (more lenient) ratings criteria applied during weak (strong) economic conditions? Or is it indicative of permanent, rather than temporary, changes in firm-level creditworthiness? To develop some insight into this question, average changes in firm-level credit risk measures are calculated conditional on economic strength.  Preliminary analysis points towards evidence of distinct ratings criteria changes across regimes, consistent with procyclicality. This is an empirical question and the subject of further inquiry.
    By the very nature of the subjectivity involved in analyst-driven, forward-looking ratings, identifying the determinants of credit ratings will never be an exact science. However, our understanding credit ratings, in particular the factors that prompt rating changes, is vital to the well-functioning of capital markets. Our results provide insight into the stability of credit ratings. CRA publications and empirical evidence point to ratings that seek a balance between some continuum of stability (immunity from cycles) and accuracy (changing in response to changes in both firm and macroeconomic conditions). Can we be more precise in our understanding of where they might lie on a through-the-cycle and point-in-time continuum? In particular, to what extent does rating' determination reflect changes reflect the state of the maro-economy? This paper is a step towards answers to these questions which are of critical importance to financial markets, including investors, portfolio managers, corporations and regulators.  
    [1] Empirical modelling is particularly challenging because the parameters or functional forms are unstable, making it difficult to capture the complex nature of the interaction between the state of the economy and credit risk.  Figlewski et al (2013) demonstrate that results are extremely sensitive to model specification, choice of macro-variables, averages versus lagged versus contemporaneous, and time period. Estimating various specifications and they find
    that significance and macro-variable coefficient signs depend upon which variables are included in the model.
  • EM Bond Investors Demand Pound of Flesh

    Source: Abhishek Kumar, State Street Global Advisors
    Date Submitted: 17 Nov 2017
    Views: 18
    Downloads: 0
    Do emerging market (EM) bonds still offer value for the risks investors take? Investors looking at the recent 100-year Argentina bond could be forgiven for thinking EM hard currency spreads had compressed to worryingly low levels. In our view, however, this type of issue is an outlier. In fact, there are plenty of securities across the EM universe offering attractive yields, especially when compared to those in developed markets (DM).
  • Green Bond Market: October 2017

    Source: Dennis Badlyans
    Date Submitted: 15 Nov 2017
    Views: 38
    Downloads: 0
    In October 2017, nearly USD 10 billion of green bonds were issued, bringing the total to USD 94 billion YTD.
  • China Banks 3Q17: Convertible Boost to CET1

    Source: Matthew Phan, CFA
    Date Submitted: 14 Nov 2017
    Views: 113
    Downloads: 0
    • The major Chinese banks generally delivered stronger earnings in 3Q17 with profits up YoY across all banks except for Citic where they were flat. 
    • Net interest margins ticked up QoQ across banks but the drivers are different for the big four versus BoCom and the joint stock banks. For the big four, the NIM levels are higher than the previous year as lending rates especially on interbank assets have picked up. BoCom and the joint stock banks also saw NIM tick up QoQ in 3Q - due to a run off of deposits and a run-up in loan deposit ratios - but levels are still 20-40 bp lower than the previous year. 
    • Gross NPLs and ratios have mostly stabilized, with the exception of Shanghai Pudong where loan quality worsened further in 3Q. Investment receivables, usually shadow loans, declined QoQ across the joint stock banks, though the books are still very large. Provision costs have moderated but the run rate of credit costs is still quite high and banks are rebuilding provision coverage. 
    • Loan growth has slowed slightly among the big banks, due to an easing of mortgage loan growth, while at joint stock banks the loan growth is generally faster and trends are more mixed. 
    • Liquidity remains stretched at BoCom and the joint stock banks where loan to deposit ratios, even when excluding shadow loans, have shot up to 90% or higher, from mostly below 80%, over the last two and a half years. 
    • CET1 ratios are stable and relatively strong at the big banks and Merchants, but some joint stock banks are under pressure and have used convertible bonds or private placements to raise CET1 capital.  For example, Everbright Bank lifted its CET1 ratio slightly by issuing convertible bonds (not the same as AT1 prefs) which are partly accounted for as equity, with this portion also counting as regulatory CET1 capital. Minsheng and Ping An respectively plan RMB 50 bn and RMB 26 bn of similar convertible bond issuance. Separately Shanghai Pudong also improved CET1 via private placement of new shares.  These examples reflect banks finding creative solutions to capital raising while they remain restricted from public equity capital raising as their price/book multiples are still under 1x. 
  • Japanese Banks: BOJ's Take on Financial Stability

    Source: David Marshall
    Date Submitted: 30 Oct 2017
    Views: 51
    Downloads: 0
    • In its latest financial stability report the BOJ highlights the unusually low profitability of Japanese banks and expresses concerns about the soundness of some lenders and risks to the efficiency of credit allocation
    • Too many lenders are fighting for a shrinking market as the population and the number of firms declines
    • Nevertheless, domestic lending has been growing at around 3%, more strongly at the regional banks than the majors, led by real estate lending to SMEs
    • Overseas funding costs have risen which has led Japanese banks to slow their growth in overseas lending and securities investment to focus more on risk and returns
    • Domestically the banks have shed yen bonds as the BOJ has bought JGBs but holdings by the major banks have picked up recently and all the banks have increased holdings of investment trusts in pursuit of higher returns  
    • As domestic loan growth has exceeded GDP growth, Japan's credit/GDP ratio has been rising, but this comes after a declining trend that has lasted more than 20 years. Before its bubble burst, Japan's ratio peaked at something close to the level that China's corporate debt/GDP is now reaching
    • The BOJ sees Japan's banking system as basically stable, but facing profitability challenges from a shrinking customer base, low lending rates, inefficiency and limited income diversification.
  • SPIVA® Australia Mid-Year 2017 Scorecard 

    Source: Priscilla Luk
    Date Submitted: 25 Oct 2017
    Views: 511
    Downloads: 5
    The SPIVA Australia Scorecard reports on the performance of actively managed Australian mutual funds against their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons. In this scorecard, we evaluated returns of more than 731 Australian equity funds (large, mid, and small cap, as well as A-REIT), 363 international equity funds, and 83 Australian bond funds. 
  • Game of Bonds: Reassessing Sovereign Credit Ratings

    Source: Martin Vezér,Doug Morrow,Andres van der Linden
    Date Submitted: 23 Oct 2017
    Views: 87
    Downloads: 4
    Sustainalytics has published a new ESG Spotlight Series report, Game of Bonds: Reassessing Sovereign Credit Ratings. In recent years, investors have shown significant interest in incorporating ESG issues into sovereign credit analysis. To build on this interest, we developed an approach for connecting ESG and credit rating agency (CRA) data to identify countries that may be undervalued (e.g. Greece), appropriately valued (e.g. Australia) and undervalued (e.g. Saudi Arabia). We found a positive correlation between countries’ ESG and CRA ratings, and their ESG momentum and GDP per capita growth, supporting the thesis that sustainable countries are safer places to invest.
  • Green Bond Market: September 2017

    Source: Dennis Badlyans
    Date Submitted: 11 Oct 2017
    Views: 5259
    Downloads: 0
    In the first three quarters of 2017, green bond issuance reached USD 83 billion, nearing the issuance reported by the Climate Bond Initiative for full-year 2016 (see Exhibit 1).  France accounted for 18% (USD 14.8 billion) of the issuance, driven primarily by the USD 7.6 billion sovereign bond issued by the country in January. Commercial banks issued 44% of the USD 12.4 billion of capital raised in China to fund green projects.  U.S. municipals continue to account for about half of the U.S. issuance YTD, however asset-backed securities continue to increase market share.  Fannie Mae, a newcomer in 2017, issued its fourth green ABS in August, bringing its YTD total to USD 1.8 billion of USD 11.4 billion issued in the U.S. market through the end of Q3 17 (see Exhibit 2).
  • The Anatomy of the Gold Crash of April 12-15, 2013 from a Liquidity Perspective – An Application of Donier and Bouchaud’s Measure of Illiquidity

    Source: Daniel Ceferino D. Camagay
    Date Submitted: 26 Sep 2017
    Views: 92
    Downloads: 5
    Gold crash of April 12-15, 2013 as seen from a liquidity perspective using Donier and Bouchard's measure of illiquidity
  • China: $ Bond - Why Issue and Where Should It Price? 

    Source: Richard Briggs, Matthew Phan, CFA
    Date Submitted: 10 Sep 2017
    Views: 881
    Downloads: 0
    • China is reported to be readying a dollar sovereign issue. We expect it to price at the tightest end of the EM external sovereign index, inside highly rated sovereigns including Korea, Hong Kong and Israel. This is thanks to what we expect will be a strong technical bid from Chinese banks.
    • China doesn't have to issue external debt which raises questions about why the sovereign is issuing at this stage. 
    • Credit growth has slowed but remains well above nominal GDP, and there are long term questions about the viability of the investments toward which credit is going. That has left the Chinese economy very imbalanced, but those imbalances are largely domestic. Foreign currency debt remains low, both at a sovereign and whole economy level.
    • China's still extremely high reserves amount to close to double the stock of external debt, both public and private and close to 19 months of imports of goods and services. Reserve drain has also been halted as outflows have been curbed sharply in 2017.
  • Banking Bad: The China and India Episode

    Source: Jonathan Rochford
    Date Submitted: 31 Aug 2017
    Views: 124
    Downloads: 14
    China and India are both getting excited about creating bad banks. Yet neither has an answer to the key question “who is going to take the loss”?
  • Asian Fixed Income: Two Growth Segments in China's Bond Market

    Source: Michele Leung
    Date Submitted: 30 Aug 2017
    Views: 104
    Downloads: 0
    China’s bond market continued to expand in 2017.  The local currency bond market, as tracked by the S&P China Bond Index, grew over 19% in the past year.  As of June 30, 2017, the S&P China Bond Index tracked 9,342 bonds with a market value of CNY 51 billion.  Two segments that recorded robust growth were the provincial and corporate bonds.
  • AAM-CAMRI-CFA Institute Prize - The Bond Pricing Implications of Rating-Based Capital Requirements      

    Source: Scott Murray, Stanislava Nikolova
    Date Submitted: 29 Aug 2017
    Views: 43
    Downloads: 0
    Paper Submission for AAM-CAMRI-CFA Institute Prize in Asset Management
  • AAM-CAMRI-CFA Institute Prize - Rise of Factor Investing: Asset Prices, Informational Efficiency, and Security Design    

    Source: Lin William Cong, Douglas Xu
    Date Submitted: 29 Aug 2017
    Views: 89
    Downloads: 0
    Paper Submission for AAM-CAMRI-CFA Institute Prize in Asset Management
  • AAM-CAMRI-CFA Institute Prize - Term Structure of Interest Rates with Short-Run and Long-Run Risks    

    Source: Olesya V. Grishchenko, Zhaogang Song, Hao Zhou
    Date Submitted: 29 Aug 2017
    Views: 78
    Downloads: 0
    Paper Submission for AAM-CAMRI-CFA Institute Prize in Asset Management
  • For China, this Time is Different

    Source: Jonathan Rochford CFA
    Date Submitted: 24 Aug 2017
    Views: 148
    Downloads: 10
    In 2008 China announced a massive stimulus package that helped its economy and the global economy weather the storm. But nearly ten years on, the situation is very different and China could shift from being a big contributor to global growth to an anchor slowing down the global economy.
  • EM Weekly: Beta Sell-Off, Asia Least Hard Hit

    Source: Richard Briggs
    Date Submitted: 13 Aug 2017
    Views: 150
    Downloads: 5
    • Risk assets took a bump last week largely due to global, rather than EM, factors. DM underperformed EM in excess return terms. In IG, EM corporates generated excess returns of minus 0.38% versus minus 0.54% on DM. In HY corporates a similar story was true with excess returns of minus 0.44% versus minus 1.12% on DM.  
    • One of the drivers of the risk off tone last week was the war of words between US President Donald Trump and North Korea's leader Kim Jong-un. That hit the Korean won hardest, it fell 1.64% versus the dollar over the week. Asian currencies were generally weaker last week, with the exception of the Chinese renminbi which strengthened by 0.98%. But in hard currency, the opposite was true with Korean names and sovereign debt generally outperforming IG counterparts.  
    • In fact the hardest hit last week in the hard currency corporate and sovereign indices were the LatAm and sub-Saharan African credits which are usually caught up in any beta sell off regardless of the driver. Asian names, which tend to be tighter, higher rated and more defensive were the strongest performing last week in that risk-off environment, including Korea.
    • Notable outliers to those broad moves last week included Teva which continued to sell off for a second week with very high trade volumes persisting after weaker 2Q17 results in the week before last. Teva was down by 1.62% in excess return terms. Venezuela and PDVSA were also among the bottom of the high yield indices' constituents for performance last week and continued to be very volatile, falling on average by 3.32% and 3.69% respectively in price terms last week. Kenya was at the stronger end of the sovereign index last week with excess returns of 0.71%, after relief that last week's elections didn't turn to violence, albeit with the result still being disputed and strikes planned on Monday.
    • Issuance slowed to a trickle last week with $2.5 bn priced, of which $1.7 bn was rated high yield. The only sovereign new issue was Gabon (B3/B+) which priced a $200 mn tap of its 6.95% 2025 notes. There are several other sovereign new issues being rumoured as coming in the second half of August or early Autumn including Bahrain (euros), $2 bn from Oman and $3 bn from Nigeria.
  • China Bond Connect: A Game Changer for Investors

    Source: David P. Furey, Bruce Zhang
    Date Submitted: 09 Aug 2017
    Views: 1479
    Downloads: 0
    The newly-launched Bond Connect link between Hong Kong and mainland China is a game-changer, in our view, for global investors seeking access to high quality sovereign debt with attractive yields, such as that which China’s Interbank Bond Market (CIBM) can provide. The development may also accelerate the inclusion of China in major bond indices, which would have important implications for bond investors globally.
  • What is driving the corporate bond market development in Asia?

    Source: Oskar Kowalewski, Paweł Pisany
    Date Submitted: 05 Aug 2017
    Views: 1188
    Downloads: 20
    We investigate the development of corporate bond markets in 10 Asian countries from 1995 to 2014. Using panel data on the market size and total issue of bonds by financial and non-financial companies, we confirm that macroeconomic and institutional factors are related to the depth of the market. In addition, we show that the issuance of bonds is also determined by other factors that strongly depend on the issuer type. We show that creditor rights and institutional quality are important in explaining the issuance of bonds by financial institutions. Furthermore, we determine a strong positive association between the level of domestic credit and the market and issue size of corporate bonds. In our opinion, the results indicate that there is a positive relationship between the development of the corporate bond market and the banking sector. These findings indicate that increased demand for bank loans induced the issuance of bonds by financial institutions which, in turn, may have led to the development of corporate bond markets in Asia.
  • China's Green Bond Markets

    Source: Tianyin Cheng
    Date Submitted: 26 Jul 2017
    Views: 1348
    Downloads: 0
    China has emerged as a global leader in green finance, especially green bonds, and from 2014 to 2016, it was the fastest-growing market in the region for sustainable investing.  The total amount of green-labeled bond issuances amounted to USD 93.4 billion at the end of 2016 and reflected strong China-based issuances (40% of labeled green bond issuance in 2016 was from China) and momentum from the Paris Agreement.
  • Fixed-Income Weekly Report, 10th-14th July

    Source: Thanh Truong; Son Nguyen, Thien Viet Securities JSC
    Date Submitted: 19 Jul 2017
    Views: 174
    Downloads: 11

    The market saw the dramatic decline in bond yield of all tenors following rate cut by State Bank of Vietnam (SBV,the central bank). It is amplified by the abundance of VND and low money market (MM) rate. Although bond yields overall were low level, Vietnam State Treasury (VST), the big player in primary market, reduced amount of bond offering when he did not rush in new issuance, in our view stated in last week report “Weekly Report_03072017_07072017”. 

  • China Property Trip Notes May 2017: Tug-of-War

    Source: Cheong Yin Chin, CFA, Luther Chai
    Date Submitted: 10 Jul 2017
    Views: 191
    Downloads: 0
    • We visited 4 'hot' cities last month, namely, Wuhan, Hefei, Nanjing and Shanghai. These cities are classified as 'hot' property markets by the Chinese government. Why? The average price of a newly constructed homes jumped ~31.4%, ~48.1%, ~51.4% and ~56.0% from January 2015 to April 2017 in Wuhan, Hefei, Nanjing and Shanghai, respectively. The respective local governments tried to rein the runaway home prices by implementing tighter housing measures. However, our recent trip indicates that these restrictive measures have not been very effective. The sales volume did decline after the introduction of tighter measures, but the average home prices remained relatively resilient.
    • Most of the projects in Shanghai (Tier-1 city) and Nanjing (upper Tier-2 city) were able to achieve high gross profit margins ("GPMs") of ~50% or above, while those in Wuhan (mid Tier-2 city) were in excess of 30%. Projects in Hefei were also at a decent GPM of above 25%, despite being a lower Tier-2 city. Given the decent to high GPMs, we can understand why many developers want to operate in these 4 cities.
    • The Chinese developers and the local governments seem to be engaged in a game of 'tug-of-war'. The local governments are delaying or suspending fresh pre-sales permits for projects with high average selling prices ("ASPs"). On the other hand, Chinese developers are not willing to lower their ASPs to meet the price caps imposed by the local governments. Most local governments' revenues are dependent on business/sales tax on property transactions, land sales, and income and land appreciation taxes from the developers. Developers are dependent on the sale of properties to generate cash flow to fund their operations. Who will cave in eventually? We think it depends which party has deeper pockets.
    • The supply-demand mismatch has led to an inventory shortage especially in the larger cities. On one hand, developers want to delay the launches of their projects in hopes of higher ASPs. On the other hand, home buyers are bringing forward the purchases in view that ASPs may increase after restrictions are lifted and borrowing might become more expensive in the future. Aggravated by the influx of migrants, entire phases of projects are sold out in a matter of days. Please refer to the body of this report for the common themes across the property markets for all 4 cities.
  • Mid-Year Research Update 2017: Active managers performance, factor-driven, ESG, and fixed income indices

    Source: Craig J. Lazzara, Priscilla Luk, Sunjiv Mainie, Charles Mounts, Aye M. Soe
    Date Submitted: 07 Jul 2017
    Views: 1204
    Downloads: 32
    Published in May 2017, this research reveals most active managers fail most of the time, at least if we define failure as underperformance of an appropriate passive benchmark. Success, when it does occur, tends not to persist.
  • PBOC Monthly: Onshore Corporate Bonds - Dead or Alive?

    Source: Matthew Phan, CFA
    Date Submitted: 22 Jun 2017
    Views: 1803
    Downloads: 26
    • Local government bond issuance has roared back to life but corporate bond financing saw the largest monthly net decline since at least 2011. Other non-bank financing was also weak in May, with outstanding entrusted loans and undiscounted bills falling on a net basis. 
    • Bank lending rose by 12.8% YoY and was the main driver of social financing growth which grew 13.0%. Household loan growth peaked in April and decelerated slightly to 24.3% YoY in May. There are multiple reports of tighter controls on the housing market, though there is not yet specific data on mortgage lending for May. Corporate loan growth picked up further to 8.5%. 
    • The weak corporate bond market is a major risk for economic growth and for corporate credit quality.  The PBOC could inject liquidity to bring down short term rates, which should reopen the bond market, but this means shifting the focus away from 'deleveraging' and might also risk renewed concerns over capital outflows. China has enjoyed relative external stability this year but this could change if the USD strengthens as and when US inflation and rates pick up or as the Fed commences plans to reduce its balance sheet. 
    • Refinancing costs have risen by over 100 bp on short dated commercial paper issued in 2015-16 when yields were low. They have risen by less on longer-dated bonds issued prior to 2015. There is some RMB 1.4 bn of commercial paper due to mature in the remaining months of 2017, with the largest issuance from the manufacturing, utilities and mining sectors.
    • Issuers of longer-dated bonds might not face a big increase in refinancing costs but could instead face the risk of being entirely unable to issue. The real estate sector in particular has a sizable amount of bonds coming due or turning putable in the remaining months of 2017 but gross issuance has been negligible in the last few months due to regulatory restrictions. Other sectors with large amounts of issuance coming due include manufacturing, conglomerates, construction and mining. 
  • 2016: A Quantum Leap for Indian Corporate Bond Market

    Source: Shagun Thukral, CFA
    Date Submitted: 20 Jun 2017
    Views: 3063
    Downloads: 47
    This paper was published in the Research Bulletin, The Institute of Cost Accountants of India, Vol. 43, No.I, April 2017 issue.  The paper seeks to establish 2016 as a turning point in the development of the corporate bond market in India while identifying the factors, using the RBI's 7i Framework, that have contributed to this push and where there remains room for further improvement.
  • Indonesian Capital Market Development and Challenges

    Source: Kahlil Rowter
    Date Submitted: 04 Jun 2017
    Views: 173
    Downloads: 13
    This article elucidates development in the Indonesian capital market until recently. Included are developments in the equity and bond markets, why they are still at a nascent stage in comparison with other South East Asian countries.
  • Presentation deck on Key Sustainable & Green Finance Trends during ARX ESG forum  April 2017

    Source: Martina Macpherson
    Date Submitted: 04 May 2017
    Views: 1971
    Downloads: 35
    CFA Institute Asia-Pacific Research Exchange ESG series kicked-start in Hong Kong - Green Finance Forum
    On 27 April, CFA Institute co-hosted a green finance forum with the Hong Kong Society of Financial Analysts and the Hong Kong Financial Services Development Council (FSDC), a high-level government advisory body that conducts policy research and industry surveys for the formulation of proposals to the Government and regulators.  This is the second green finance forum organized by CFA Institute in Hong Kong, ARX’s second o2o event as well as ARX’s ESG Track maiden event. The forum attracted 140 attendees including CFA members, industry practitioners, think tanks, environmental and other NGOs.
    The evening began with a keynote speech delivered by Martina Macpherson, S&P Dow Jones Indices Head of Sustainability Indices on an overview of green finance and ESG trends. Up next Mary Leung, Head of Standards and Advocacy for CFA Institute Asia Pacific led a panel discussion featuring Martina and ESG experts from PwC, HSBC and AXA Investment Managers focusing on the intrinsic value of ESG. 

    The PowerPoint Presentation of Martina's keynote speech can be downloaded in the attachment.

    Overall the event was a great success with very positive feedbacks from both participants and panelists.  The next stop for the CFA Institute Asia-Pacific Research Exchange ESG Series will take place in Singapore on the 11th May 2017.
  • Bond market boom? Hong Kong's latest trading link set to spur $10 trillion market

    Date Submitted: 24 Mar 2017
    Views: 206
    Downloads: 0
    WiC's latest review of the key business stories from China
  • Regional Settlement Infrastructure and Currency Internationalization: The Case of Asia and the Renminbi

    Source: Rhee, Changyong, Sumulong, Lea
    Date Submitted: 27 Feb 2017
    Views: 282
    Downloads: 6
    Rhee, Changyong; Sumulong, Lea | February 2014
  • Asia Bond Monitor - March 2015

    Source: Asian Development Bank
    Date Submitted: 09 Feb 2017
    Views: 212
    Downloads: 6
    Asian Development Bank | March 2015
  • Facilitating Foreign Exchange Risk Management for Bond Investments in ASEAN+3

    Source: Asian Development Bank
    Date Submitted: 06 Feb 2017
    Views: 177
    Downloads: 4
    Asian Development Bank | August 2015
  • Local Currency Bonds and Infrastructure Finance in ASEAN+3

    Source: Asian Development Bank
    Date Submitted: 06 Feb 2017
    Views: 126
    Downloads: 3
    Asian Development Bank | July 2015
  • ASIA BOND MONITOR: March 2016

    Source: Asian Development Bank
    Date Submitted: 02 Feb 2017
    Views: 1938
    Downloads: 17
    Asian Development Bank | March 2016
  • Chinese Local Government Bonds Offer Diversification in a World of Correlations

    Source: QIC
    Date Submitted: 28 Dec 2016
    Views: 2255
    Downloads: 0
    China watchers are hard to please. When the country was roaring with double-digit growth, they took issue with its economic model. Too much fixed capital investment, too many wasted resources, not enough attention to quality and on it went.
  • Corporate Credits Come to Fore in Liquidity-Challenged World

    Source: Stephen Holmes, Katrina King
    Date Submitted: 28 Dec 2016
    Views: 324
    Downloads: 0
    A great deal of investment industry commentary these days reads like a tale of woe. High on the list of complaints is overbearing regulation that has drastically reduced liquidity and made it harder and costlier to trade. There is no force majeure clause to get investment professionals off the hook. Institutional clients and those they serve – members of superannuation funds, retirement plans and savers – continue to require good returns and we believe pockets of opportunity do exist. Corporate credits are a prime example, in our view. The greater liquidity risk is being compensated by a higher premium assigned to corporate bond yields. For investors that don’t require instant liquidity or are unencumbered by mark-to-market pressure, the current higher premium demanded for “illiquidity risk” presents an opportunity to experience a form of financial schadenfreude – to gain satisfaction from others’ misfortune. There is an important caveat to keep in mind. Credit-investing, even in quality names, is a far cry from set-and-forget investing. A blasé attitude is the antithesis of successful credit investing. Watchful eyes – active monitoring – must be ever present.

    Source: Douglas Cumming, Grant Fleming, Frank Liu
    Date Submitted: 18 Nov 2016
    Views: 269
    Downloads: 3
    Buying private debt on the secondary market delivers higher returns than buying-and-holding a primary issuance. Excess returns are positively related to volatility and to credit risk but are not influenced by market liquidity.
  • AFBC-Information asymmetry and credit rating? A quasi-natural experiment from China.

    Source: Xiaolu Hu, Jing Shi, Jing Shi
    Date Submitted: 16 Nov 2016
    Views: 256
    Downloads: 3
    This paper examines how the incumbent issuer-pay credit rating agencies in China change their ratings’ strategy as a response to the entry of an independent rating agency, China Credit Rating (CCR), which utilizes a combination of public utility and investor-pay business models. By investigating the rating inflation change after CCR’s entrant using difference in difference method and market reaction of the rating change announcements issued by the incumbents before and after CCR’s coverage initiation by event study, we find that the incumbent issuer-pay rating agencies significantly change their rating behaviour, which reflect the reduction of information asymmetry of the bond market. This result adds empirical evidence on literature documenting the influence of introducing a new rating agency with alternative business models other than issuer-pay rating agencies. We further show that the scopes of information asymmetry reduction are different associated with different information scenarios and reputation of the rating assigners.
  • In-House Investment Management: Making and Implementing the Decision

    Source: Geoff Warren, David Gallagher, Tim Gapes
    Date Submitted: 07 Nov 2016
    Views: 368
    Downloads: 0
    This paper reports on interviews with executives from the Australian superannuation industry around in-sourcing of asset management. A framework is proposed that asset owners can use for making and implementing decisions to manage in-house.
  • The Fixed-Income Challenge: The Monetary Policy Pit

    Source: Jason Voss, CFA
    Date Submitted: 14 Oct 2016
    Views: 531
    Downloads: 0
    This is a blog posted on CFA Institute's website on 15 September 2016.
  • Review of factors constraining the development of Indian corporate bond markets

    Source: Shagun Thukral, CFA, Sharada Shridhar, Dr. Medha Joshi
    Date Submitted: 12 Oct 2016
    Views: 719
    Downloads: 11
    This paper is a literature review of papers on the development of corporate bond markets in India. It was published by Emerald in the Qualitative Research in Financial Markets journal in November 2015.
  • Event Based Analysis of the Corporate Bond Market in India Through a 7i Framework

    Source: Shagun Thukral, CFA
    Date Submitted: 05 Oct 2016
    Views: 3856
    Downloads: 81
    This paper was published in the Research Bulletin, The Institute of Cost Accountants of India, Vol. 42, No.I, April 2016 issue. The paper seeks to establish through the 7i Framework of the RBI, the strides the corporate bond market in India has already made in this regard and the possible areas that still need a push. The researchers have relied on the published news reports pertaining to the corporate bond markets in India to collect data on the issuances for the calendar year 2015 as well as other material information concerning the markets.
  • AFBC - The Value Relevance of Regulatory Capital Components

    Source: Martien Lubberink, Roger Willett
    Date Submitted: 21 Sep 2016
    Views: 372
    Downloads: 11
    Our paper examines how investors value regulatory bank capital components, e,g. Tier 1 Hybrids, deduction of Goodwill, etc.
  • AFBC - Learning and Contractual Evolution: The Case of Leveraged Loans

    Source: Edison Yu, Mitchell Berlin, Gregory Nini
    Date Submitted: 21 Sep 2016
    Views: 273
    Downloads: 6
    A working paper to be presented at the 29th Australian Finance and Banking Conference
  • FTSE Russell China Bond Research Report - June

    Source: FTSE Russell
    Date Submitted: 18 Aug 2016
    Views: 500
    Downloads: 0
    FTSE Russell's China Fixed Income Research Paper on the market overview, development of the onshore bond market, regulatory updates, onshore/offshore convergence and other related topics.
  • Effect of Debt Financing on Corporate Financial Performance: Evidence from Textile Firms in Pakistan

    Source: Sana Tauseef, Dr. Heman Das Lohano, Sara Ashfaq
    Date Submitted: 10 Aug 2016
    Views: 392
    Downloads: 12
    Original research by author based on statistical analysis
  • The end of A-share DaXin Strategy and its Implication to China Bond Investment

    Source: WeiYong Gu, CFA
    Date Submitted: 17 Jul 2016
    Views: 267
    Downloads: 3
    This is a research report published by UCON Investments in July 2015.
  • How to understand the challenges facing China Bond Investors

    Source: WeiYong Gu, CFA
    Date Submitted: 17 Jul 2016
    Views: 256
    Downloads: 5
    This is a research report published by UCON Investments.
  • Credit investment in China: The Guideline and Our Approaches

    Source: WeiYong Gu, CFA
    Date Submitted: 17 Jul 2016
    Views: 289
    Downloads: 3
    This is a research report published by UCON Investments in August 2015.
  • What Does the Chaori Default Mean for the Chinese Financial Markets? Share on Facebook Share on Twitter Share on LinkedIn Share via E-Mail

    Source: Larry Cao, CFA
    Date Submitted: 29 Jun 2016
    Views: 232
    Downloads: 0
    This is a blog posted on CFA Institute's website on 13 March 2014.
  • What Makes Emerging Market Debt Tick?

    Source: Larry Cao, CFA
    Date Submitted: 29 Jun 2016
    Views: 303
    Downloads: 4
    This is a blog posted on CFA Institute's website on 29 April 2014.
  • Emerging Market Debt: An Overlooked Source of Alpha?

    Source: Larry Cao, CFA
    Date Submitted: 29 Jun 2016
    Views: 400
    Downloads: 2
    This is a blog posted on CFA Institute's website on 28 May 2014.
  • Japan Enters Recession: Should We Be Surprised?

    Source: Ron Rimkus, CFA
    Date Submitted: 29 Jun 2016
    Views: 267
    Downloads: 0
    This is a blog posted on CFA Institute's website on 17 November 2014.
  • Basis risk of banking interest rate cross hedging with OTC instruments in Thailand

    Source: Savin Wangtal
    Date Submitted: 23 Jun 2016
    Views: 359
    Downloads: 8
    Modern papers often focus at time-varying regression based or dynamic hedging of interest rate instruments, which does not work well in undeveloped market with limited hedging instruments. This paper examine of hedging in basis risk and required turnover from rebalancing in simple hedging approaches that can be easily employed in undeveloped market such as Thailand.
  • Bonds = Risks

    Source: A. Michael Lipper, CFA
    Date Submitted: 19 Jun 2016
    Views: 427
    Downloads: 0
    This is a blog posted on CFA Institute's website on 10 October 2014.
  • Two Questions I Am Asking to Survive This Market

    Source: A. Michael Lipper, CFA
    Date Submitted: 19 Jun 2016
    Views: 311
    Downloads: 2
    This is a blog posted on CFA Institute's website on 18 October 2014.
  • Upside Volatility Is Rising, along with Fixed-Income Leverage

    Source: A. Michael Lipper, CFA
    Date Submitted: 19 Jun 2016
    Views: 251
    Downloads: 0
    This is a blog posted on CFA Institute's website on 12 November 2014.
  • 中国信用市场的投资机会

    Source: 李向辉, CFA, FRM, CAIA
    Date Submitted: 15 Jun 2016
    Views: 423
    Downloads: 2
    This article appears on CFA Institute hedge fund journal 2014 issue, season 2.
  • 全球债券的新时代: 你所知道的都是错的

    Source: Jason Voss, CFA
    Date Submitted: 14 Jun 2016
    Views: 277
    Downloads: 1
    This article appears on CFA Institute hedge fund journal 2013 issue, season 2. The original article appears on CFA Institute's official website:
  • 孙志鹏:债券市场潜力无限

    Source: 张佳昺, CFA
    Date Submitted: 14 Jun 2016
    Views: 334
    Downloads: 1
    This article appears on CFA Institute hedge fund journal 2013 issue, season 1.
  • Model Request for Proposal—Fixed Income: A Template for Small Institutional Investors

    Source: CFA Institute
    Date Submitted: 13 Jun 2016
    Views: 382
    Downloads: 1
    This paper appeared on CFA Institute's website in September 2008.
  • 国债期货的现货基础

    Source: 孙志鹏, CFA
    Date Submitted: 07 Jun 2016
    Views: 330
    Downloads: 2
    This article appears on CFA Institute hedge fund journal 2014 issue, season 1.
  • “Dim Sum” on the Financial Menu

    Source: Bob Dannhauser
    Date Submitted: 06 Jun 2016
    Views: 252
    Downloads: 1
    This is a blog posted on CFA Institute's website on 23 September 2011
  • AIJ Fallout Casts Harsh Spotlight on Japan’s Pension Fund Managers

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 278
    Downloads: 0
    This is a blog posted on CFA Institute's website on 7 March 2012.
  • Japan’s Government Pension Investment Fund, Among Others, Forced Away from Fixed Income

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 385
    Downloads: 0
    This is a blog posted on CFA Institute's website on 23 October 2012.
  • Chinese Shadow Banking: Risks and Rewards

    Source: Alan Lok
    Date Submitted: 05 Jun 2016
    Views: 454
    Downloads: 4
    This is a blog posted on CFA Institute's website on 23 December 2014.