Cachet's Insight 09/03/2020

Market Outlook

As of 5 March, JACI Total return index delivered +0.70% for last week. Primary issuance has slowed amid volatile market condition. China Official Manufacturing PMI plunged to record low of 35.7 in Feb from 50 in Jan. Non-manufacturing PMI also fell to 29.6 from 54.1 in Jan. The Caixin Service sector PMI similarly plunged to lows of 26.5, vs 51.8 in Jan. Limit IPO market activity in the time being.

A broad market sell-off in risk assets continued as COVID-19 showed no signs of containment worldwide., and oil prices plunged 30% in early trading after OPEC’s failure to strike a deal with its allies regarding production cuts caused. Investors bailed out of risk-assets in recent days. More action from central banks and government globally were announced last week to mitigate virus risks. 10Y UST yields fell to historic lows, and was down to 0.51% as of 9 March. Investors should keep a close watch on developments of the coronavirus spread and impact on oil price war to the markets. Portfolio duration lengthened as virus outbreak continues to impact the global economy.

The Fed delivered an emergency rate cut of 50bps on last Tuesday to counter the economic impact from COVID-19. Markets generally expect more supportive and easing measures to follow from central banks globally. Other central banks which also cut rates last week include Australia, Malaysia, Canada, and Hong Kong. Close monitoring of geopolitical events especially US-China trade progress and Middle east tensions as global geopolitics remain volatile. Investor may trim longer dated or marginal China and Indonesia exposure to reduce portfolio risk, while monitoring market liquidity and issuer fundamentals as the situation develops.

“It is too early to expect a market bottom,” Satya Pradhuman, director of research at Cirrus Research, wrote in a note to clients. “Credit spreads are likely to widen further from here. In addition, earnings risks abound and estimates are still likely to fade further.” Market is down as investors worry about oil price fall may bring liquidity and bankruptcy crisis to some of US oil companies which are highly in debt. Investors need to be cautious and wait for the market to bottom.

Hot Topic

Brent crude oil futures gapped sharply and opened 25% lower on Monday, once falling more than 30% to $31.02 per barrel, its lowest level since Feb. 2016. U.S. West Texas Intermediate crude dropped 27% to $30 per barrel, also its lowest level since Feb. 2016. WTI is on pace for its worst day since January 1991 during the Gulf War, and its second worst day on record. According to Bloomberg, Saudi Arabia sharply reduced crude oil prices sold to foreign markets in Europe, the Far East and the United States on Saturday, with the largest discount in more than 20 years to attract foreign refiners to buy Saudi crude. The market generally believes that this is after Saudi Arabia's refusal to reduce production at the OPEC + policy meeting on March 6. Saudi Arabia, the main OPEC country, initiated the crude oil price war.

After the initial drop the losses pared somewhat, with Brent trading 24.59% lower at $34.14 per barrel and U.S. crude futures 25.61% lower at $30.71 per barrel.

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day but has the capacity to ramp up to 12.5 million barrels per day.

Oil prices have already moved sharply lower this year as the coronavirus outbreak has led to softer demand for crude. A potential supply glut could pressure prices further.

″$20 oil in 2020 is coming,” Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc - may prove existential 1-2 punch when paired with COVID19.”

Goldman also cut its second and third quarter Brent forecast to $30 per barrel, and said that prices could dip into the $20s.“We believe the OPEC and Russia oil price war unequivocally started this weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude by the most in at least 20 years,” Goldman Sachs analyst Damien Courvalin said in a note to clients Sunday. “The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” the firm added.

Vital Knowledge founder Adam Crisafulli said Sunday that oil “has become a bigger problem for markets than the coronavirus,” but also said that he does not foresee prices falling to the Jan. 2016 lows.

“Saudi Arabia can’t tolerate an oil depression – the country’s fiscal breakeven oil prices remains very high, Saudi Aramco is now a public company, and MBS’s grip on power isn’t yet absolute. As a result, the [government] won’t be so cavalier in sending oil back into the $30s (or even lower),” he said in a note to clients Sunday. But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement.

Chart of the week

Oil prices plunged 30% in early trading after OPEC’s failure to strike a deal with its allies regarding production cuts caused Saudi Arabia to slash its prices as it reportedly gets set to ramp up production, As the new coronavirus has spread widely, and the investors are worried that there will be a price war in oil, global stock markets fell off on Monday morning. US futures index fell by 5%, Asian markets also recorded percentages of decline, the rush to havens as investors bailed out of risk-assets in recent days, has sent global bond yields to record lows. The yield on the Bloomberg Barclays Global Aggregate Bond Index, which includes developed and emerging-market debt from governments and corporations, tumbled to below 1% Monday, its lowest ever. Indications from the Federal Reserve and other major central banks that they are willing to ease policy to combat the economic impact of the outbreak has fueled investor demand for bonds.

Index Comparison

The Bloomberg dollar spot index has further to decline if it responds to the recent S&P 500 index drop similarly to previous episodes. After large swoons for U.S. stocks in 2018 and 2019 it took a few weeks for the BBDXY index to find a bottom. That would imply that even if the Feb. 28 low for the S&P 500 remains the nadir for this cycle, the dollar has more near-term downside. And if equities have more weakness ahead, it will push a dollar rebound even further away.

There is also downward pressure on the dollar from the prospect of more Fed rate cuts this year. That could be as much as 50bps, according to the Fed funds futures curve. The BBXY index has also struggled to clearly break above the 1,220 area in the past year. All of which will embolden USD bears.

Asset Allocation

Asia Bond Market

Asia’s primary dollar bond market got off to a slow start in March with no fresh deals on last Monday, amid volatile moves in Treasuries and equities, with investors assessing the latest reports on the coronavirus. A selloff of Asian dollar bonds continued early last Monday as spreads were indicated wider by 3-7bps, according to traders. While moves in financial markets remained volatile on last Tuesday, some traders cited a tightening in spreads for better-quality Asian dollar bonds. Several Chinese issuers waded into the Asia dollar bond market last Wednesday, with two borrowers selling short-dated notes above 12%, even as volatility spurred by the coronavirus dominated investors’ focus. Spreads on Asia dollar bonds widened by about 4-7bps last Wednesday morning, according to traders, after an emergency rate cut by the Fed failed to allay concerns about an economic slowdown. JPMorgan Asset Said Investors likely to pile into U.S. bonds. The Asia dollar bond primary market was subdued on last Thursday, as financial markets continued to see swings in asset prices, given the uncertain outlook for the global economy amid a widening spread of the coronavirus worldwide. S&P Said China developers face ratings vulnerability amid virus, Fitch said HNA creditor losses likely as restructuring tests government.

Hot bonds:

Sinic Holdings

  • $280m 364-Day Bond at 11.75%

  • Unrated

  • Reg S

  • JGCs, JBRs and JLMs: Guotai Junan International (B&D), BOC International, UBS, Haitong International

  • Ticker: SINHLD 1134 03/10/21, Reference Price: 99.667, YTM: 12.1154%

Jingrui Holdings

  • $180m 2Y Bond at 12.75%,

  • Expected Issue Ratings: B3 (Moody’s)

  • Reg S

  • JGCs, JBRs & JLMs: Guotai Junan International (B&D), Haitong International, GF Securities, Standard Chartered Bank, BOCOM International, BOSC International, China International Capital Corporation, CRIC Securities, TF International, CMB International

  • Ticker: JINGRU 12.75 03/11/22, Reference Price: 100.007, YTM: 12.7459%

JY Grandmark

  • USD 364-Day Bond at 7.5%

  • Unrated

  • Reg S

  • JBRs & JLMs: ICBC (Asia), Chong Hing Bank, Jinghui Capital

  • Ticker: JYGMHD 7.5 03/09/21, Reference Price: 100.112, YTM: 7.3818%


  • $222.6m 3Y Added New Bonds at 12%, IPT 12.25% Area (Size of New and Exchange Notes $450m)

  • EXPECTED ISSUE RATINGS: B by Fitch, BB- by Lianhe Global

  • Reg S

  • JGCs/JLMs/JBRs: Nomura (B&D), BOSC International, AMTD, DBS Bank Ltd., CCB International, Haitong International, BOCOM International, China Investment Securities International, Zhongtai International, HeungKong Financial, ABC International, CMBC Capital, UBS and Yue Xiu Securities

Global Indices

  • SSE Composite Index was up 5.35% last week.

  • Hang Seng Index was up 0.06% last week.

  • Dow Jones Industrial Average index was up 1.79% last week.

  • NASDAQ Composite Index was up 0.10% last week.

  • S&P 500 Index was up 0.61% last week.

Newly Listed

  • 9916.HK Xingye Wulian Service Group Co. Ltd. (2020/03/09)

  • 1343.HK Wei Yuan Holdings Limited(2020/03/12)

  • 9936.HK Ximei Resources Holding Limited(2020/03/12)

  • 1950.HK Sunlight Technology Holdings Limited(2020/03/12)

  • 1433.HK Cirtek Holdings Limited(2020/03/12)

  • 1859.HK China Bright Culture Group(2020/03/13)

  • FLRZ.US F5 Finishes Inc (2020/03/08)

  • IMRA.US Imara Inc (2020/03/12)

Analyst Recommendation

  • GF Securities Co. Ltd. gave its price target on S-Enjoy Service Group Co Ltd (1755.HK) to HK$20.55 a share and gave the buy rating.

  • HSBC gave its price target on AIA Group Ltd (1299.HK) to HK$96.00 a share and gave the buy rating.

  • HSBC gave its price target on Cathay Pacific Airways Ltd (0293.HK) to HK$12.00 a share and gave the buy rating.

  • Goldman Sachs gave its price target on Pinduoduo Inc (PDD.US) to US$39.80 a share and gave the buy rating.

  • Jefferies gave its price target on Ulta Beauty Inc (ULTA.US) to US$310.00 a share and gave the buy rating.

Result Announcement


  • Annual: 1233.HK Times China Holdings Ltd

  • Annual: 1238.HK Powerlong Real Estate Holdings Ltd

  • Quarter: SOGO.US Sogou Inc

  • Quarter: SOHU.US Ltd

  • Quarter: CYOU.US Ltd


  • Annual: 0123.HK Yuexiu Property Co Ltd

  • Annual: 9928.HK Times Neighborhood Holdings Ltd

  • Annual: 2378.HK Prudential PLC

  • Annual: 0004.HK Wharf Holdings Ltd/The

  • Quarter: AEE.US Ameren Corp


  • Annual: 0293.HK Cathay Pacific Airways Ltd

  • Annual: 0020.HK Wheelock & Co Ltd

  • Quarter: PDD.US Pinduoduo Inc

  • Quarter: GDS.US GDS Holdings Ltd

  • Quarter: RST.US Rosetta Stone Inc


  • Annual: 1299.HK AIA Group Ltd

  • Annual: 0019.HK Swire Pacific Ltd

  • Annual: 0806.HK Value Partners Group Ltd

  • Quarter: BEST.US BEST Inc

  • Quarter: ULTA.US Ulta Beauty Inc


  • Annual: 1755.HK S-Enjoy Service Group Co Ltd

  • Annual: 1448.HK Fu Shou Yuan International Group Ltd

  • Annual: 0232.HK AVIC International Holding HK Ltd

  • Quarter: TEO.US Telecom Argentina SA

  • Quarter: AIG.US American International Group Inc

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