At GAM Investments’ latest Fixed Income Meeting, held on 27 July, our managers shared their thoughts on the impact of Chinese regulatory change on the global credit markets.
Andrew Dewar – Asian Credit
News of significant regulatory tightening by Chinese authorities across certain high-profile sectors has led to a selloff in both stock and bond markets in the country and across the region. Much of the corporate bond market has felt the effects, although large tech names with heavy cash piles have held up better. The regulatory announcements focus on the areas of technology, education and property management. Individually, such announcements may not have led to such a negative market reaction overall. However, all three together sends a signal to the market that Chinese regulators are cracking down on sectors of the economy not typically controlled by the state with little concern for foreign investors.
Walid Bellaha – Emerging Markets Credit
When examining whether emerging market (EM) credit valuations are at risk from the headwinds coming from China’s regulatory challenges, we find that from a market sentiment perspective and amid thin liquidity, there has been some localised spread widening outside China. India spreads have started to slightly widen in the last week, indicating perhaps some contagion. Generally, EM spreads are tight if we consider the range the spreads were at over the past three years, with exceptions only existing (to some extent) in India, Indonesia, Argentina, Colombia and Turkey. The opportunities we are finding are coming from rising stars among BB-rated bonds. Some bonds are benefiting from the recovering oil prices and high commodity prices, evident in the various upgrades being given by rating agencies. Overall spreads were tighter across the board in the past week, making China spread moves stand out – it is one of the only places where spreads have widened significantly in the last week.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not a reliable indicator of future results or current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented and are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.