“In Asia, the majority of the corporates are in the sweet spot of the credit cycle. It means they are pretty much done with the down cycle and are beginning to enter the repair-and-recovery stage, before moving on to an early-expansion stage. Only a few sectors — including China property, Hong Kong property and a few Korean corporates — are still in a down cycle, but they’re close to the end of that cycle,” Zeng elaborates.
By some accounts, credit analysts view Asia’s credit markets as dislocated, hence offering good investment opportunities for the brave. Jenny Zeng, CIO of fixed income at Asia-Pacific, Allianz Global Investors, argues that now is the time to wade into the Asian credit market. More than that, she believes that Asian high-yield is in the right part of the credit cycle. The caveat is — the base case has to be a US soft landing scenario, where the Federal Reserve starts to cut interest rates later this year.
The most opportune time in the credit cycle is when corporates are wading through tough times; they start to repair their balance sheets just as the business cycle reaches a trough. Once that is done, the corporates will want to look for growth. At the bottom of the market, credit is hard to come by; banks are reluctant to lend. Stressed corporates have to get their funding somewhere else; 21% of high-yield debt matures between now and 2025; and at the right price, credit is available.
