Astera In-House Views - June 2023
Asia Credits: China property sector once again being the spotlight and positive developments on frontier markets
Despite the majority of the Asia Credit universe continuing to stall, there was again some movement in the China property sector. Concerns on China growth and poor economic data have continued to drag the sentiment within the China High Yield space, hence non-default China Property names have continued to be the target for bearish investors, looking to reset their short positions after a short-lived rebound in early June. With concerns building up on the demand side, China’s Property sector corrected in June to a new YTD low.?
On the other hand, there were some optimistic developments in the Asia Frontier Markets in late June. Two distressed countries Pakistan and Sri Lanka had both benefitted from new rounds of aid program provided by the IMF. With solid supportive measures to reform the economies of these frontier market countries (by the time of publishing, IMF had already approved US$3 bn stand-by arrangements for Pakistan), we are excited for the potential alpha generation in this space in the coming months.
Macro Market: Rate hikes paused, but not stopped
June 2023 was an eventful month with the Fed finally pausing rate hikes; yet this didn’t imply the end of the rate hike cycle, as the dot plot showed that two more hikes are coming and surprised the consensus view. However, these developments took turn with recent US CPI data missing consensus; and we believe that it might be the starting point on rates stabilizing. Any less hawkish messages in the coming FOMC meeting will deliver a strong risk-on sentiment in the credit markets. This mentioned; it is still very data dependent on the overall credit space, and we have to monitor one to two more months for certainty on beta.
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