Cachet's Insight 23/03/2020

Market Outlook

As of 19 March, JACI Total return index delivered -6.15% for last week. As reference, JACI HY was down 10.30% for the same period. Primary issuance is limited last week amid heightened volatility in markets. US jobless claims also jumped to 2-year high amidst company closures. China economic activity contracted the sharpest pace in 30 years, with Jan-Feb industrial output dropping 13.5% and fixed asset investment declining 24.5% Retail trade also missed expectations and fell 20.5% in the same period.

Market volatility remained very high and the sell-off continued this week as the COVID-19 situation worsened. Last week saw some of the largest USD bond fund outflows across IG, HY and the EM debt space. More coordinated action from central banks and crisis-era stimulus measures have been announced. As investors rushed for cash, 10Y UST yields climbed by 34bps this week to 1.14% as of 19 March close. Investors should keep a close watch on developments of the coronavirus spread and oil price collapse, and their impact on market liquidity and issuer fundamental, and Maintain defensive posture, focus on liquidity through UST and cash.

Last Sunday, the Feb delivered another emergency rate cut of 1% to a range of 0 - 0.25% amidst mounting recession fears, and slew of other measures including the purchase of USD700b in bonds. The ECB unveiled a EUR750b bond buying program last Wednesday. More central bank actions announced stimulus measures last week, including China, Australia, and Japan. Investor should closely monitor the geopolitical events especially Saudi-Russia oil price war, US-China trade progress and Middle east tensions as global geopolitics remain volatile, limit IPO market activity in the time being.

Hot Topic

Chinese property developers, the biggest junk bond issuers in Asia, are at growing risk of default as the coronavirus outbreak squeezes funding channels, according to PricewaterhouseCoopers. In China, 90% of apartments are sold before construction is completed, making developers “reliant on pre-sales as part of their overall financing,” PwC said in a report released in Hong Kong last Thursday. That strategy has taken a hit after large swathes of the country were locked down to stop the spread of the virus, shuttering showrooms and display units. Cracks have already appeared with Macrolink Holding Co., a Chinese conglomerate with exposure to property, defaulting on its onshore debt earlier this month. “There will be defaults,” said James Dilley, a Hong Kong-based partner at PwC. “There are certainly some weaker ones that are under a lot of stress, so I think there certainly will be more stress in the sector.”

China’s builders raised a record $76.8 billion of dollar-denominated bonds last year, according to data compiled by Bloomberg. Investors have long held the assumption developers are systemically important and the government won’t allow a flurry of failures, and so far, most defaults have been among companies in other sectors. That could change, leaving investors and lenders exposed.

Chart of the week

Chinese dollar bonds extended their sharp declines last Thursday, led by the country’s heavily indebted property developers, as credit markets across the globe face intensifying strains. The sharp losses have led to margin calls on some of the notes for investors who funded their purchases with borrowed funds, according to some traders.

Here are some of the biggest decliners in the bond market last Thursday:

China Evergrande Group’s $1 billion 12% bond due in 2024plunged 10 cents on the dollar, the biggest fall on record, to 62 cents. The bond was priced at par in mid-January. Since last week, it has fallen by 30 cents, according to prices compiled by Bloomberg.

Yuzhou Properties Co. saw its $400 million dollar 7.7% note due 2025 tumble 17 cents, also marking its largest drop since it was issued in February, to 60 cents. It has slid by 35 cents since last week.

Country Garden Holdings Co.’s $450 million 5.625% note sold in January sank for a seventh day, losing 5.7 cents to 69.2 cents, a record low.

“The sell-off in risk assets is global. Along with margin calls, there are also funds and ETFs redemptions,” said Thu Ha Chow, a portfolio manager at Loomis Sayles Investments Asia. “The aggressive falls in prices on some bonds do not only represent risk aversions but also the lack of liquidity.”

Investors are rushing to dump risk assets for cash as companies the world over face a sudden halt to revenues thanks to the widespread shutdowns of businesses to contain the coronavirus. While a rapidly growing suite of economic and financial support measures by global policy makers aims to address the shocks, that has yet to arrest instability in capital markets. “China high yield is more property and less energy or commodity based than other geographies, which initially made it sort of a ‘safe haven’ in high yield,” said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd. “With margin calls increasing it is now a question of sourcing liquidity where you can,” and “I think that this explains a bit of the China emerging market.

Investment Ideas

Chinese High Yield Bond:Property Developers

Sunac China (XS1936202644)

(Ticker:SUNAC 8.375 01/15/2021, Reference Price:93, Yield to Maturity:18%)

China Greentown (XS2076070619)

(Ticker:GRNCH 4.55 11/10/2020, Reference Price:98, Yield to Maturity:7.86%)

Asset Allocation

Asia Bond Market

Asia dollar bond sales ground to a halt last Monday, as the outlook for the global economy looked grim with the fallout from the virus pandemic widening. The Federal Reserve’s move to slash its benchmark interest rate by a full percentage point failed to buoy credit markets in Asia. The widening spread of the virus has caused panic in global financial markets, as infections outside China now surpass those on the mainland, with fatalities in Italy jumped over 5,000. Asian credit-default swaps, excluding Japan, jumped again last Monday and are on track for their highest level in more than 3 1/2 years. Spreads on Asia dollar bonds were about 5-20 bps wider last Monday morning, according to traders. Historic sell-off leaves credit markets unimpressed by Fed move. Credit markets continued to slump last Tuesday, with spreads set to hit the highest in more than eight years. Asia’s borrowers stayed at the sidelines as credit markets kept reeling despite the European central bank launching a massive extra emergency stimulus. Chinese dollar bonds extended their sharp declines last Thursday, led by the country’s heavily indebted property developers, as credit markets across the globe face intensifying strains. The sharp losses have led to margin calls on some of the notes for investors who funded their purchases with borrowed funds. Dollar bond sales by Asian issuers tumbled to $500m this week, from $2.7 billion, the lowest since January, as credit markets suffered the worst rout in a decade.

Global Indices

  • SSE Composite Index was down 4.91% last week.

  • Hang Seng Index was down 5.11% last week.

  • Dow Jones Industrial Average index was down 17.30% last week.

  • NASDAQ Composite Index was down 12.64% last week.

  • S&P 500 Index was down 14.98% last week.

Newly Listed

  • 9969.HK InnoCare Pharma Limited (2020/03/23)

  • 1957.HK MBV International Limited (2020/03/27)

  • 1463.HK C-Link Squared Limited (2020/03/27)

Analyst Recommendation

  • Citic Securities gave its price target on Poly Property Development Co Ltd (6049.HK) to HK$65.05 a share and gave the buy rating.

  • Goldman Sachs gave its price target onWuXi AppTec Co Ltd (2359.HK) to HK$123.80 a share and gave the buy rating.

  • ABC International gave its price target on ANTA Sports Products Ltd (2020.HK) to HK$80.30 a share and gave the buy rating.

  • Jefferies gave its price target on Kweichow Moutai Co Ltd (600519.CH) to RMB$1480.00 a share and gave the buy rating.

  • Morningstar gave its price target on NIKE Inc (NIKE.US) to US$106.00 a share and gave the buy rating.

Result Announcement


  • Annual: 2313.HK Shenzhou International Group Holdings Ltd

  • Annual: 6060.HK ZhongAn Online P&C Insurance Co Ltd

  • Annual: 6186.HK China Feihe Ltd

  • Annual: 600276.CH Jiangsu Hengrui Medicine Co Ltd

  • Quarter: CMCM.US Cheetah Mobile Inc


  • Annual: 2020.HK ANTA Sports Products Ltd

  • Annual: 2359.HK WuXi AppTec Co Ltd

  • Annual: 3662.HK Aoyuan Healthy Life Group Co Ltd

  • Annual: 603127.CH Joinn Laboratories China Co Ltd

  • Quarter: NIKE.US NIKE Inc


  • Annual: 1813.HK KWG Group Holdings Ltd

  • Annual: 6049.HK Poly Property Development Co Ltd

  • Annual: 600519.CH Kweichow Moutai Co Ltd

  • Annual: 603259.CH WuXi AppTec Co Ltd

  • Quarter: MU.US Micron Technology Inc


  • Annual: 0688.HK China Overseas Land & Investment Ltd

  • Annual: 1044.HK Hengan International Group Co Ltd

  • Annual: 2269.HK Wuxi Biologics Cayman Inc

  • Annual: 2168.HK Kaisa Prosperity Holdings Ltd

  • Annual: 603288.CH Foshan Haitian Flavouring & Food Co Ltd


  • Annual: 1030.HK Seazen Group Ltd

  • Annual: 0884.HK CIFI Holdings Group Co Ltd

  • Annual: 0763.HK ZTE Corp

  • Annual: 601111.CH Air China Ltd

  • Annual: 601857.CH PetroChina Co Ltd

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