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Dim Sum Go to First From Worst as Western ’13 Pick: China Credit

Dim Sum Go to First From Worst as Western ’13 Pick
Sovereign Dim Sum notes returned 1.2 percent compared to 2.7 percent for yuan notes onshore. Photographer: Jerome Favre/Bloomberg

Dim Sum bonds transformed into the best local-currency company notes in Asia this year from the worst in 2011 and are among the top picks of Western Asset Management Co. as China’s economy rebounds.

Corporate yuan-denominated securities sold outside mainland China gained 6.2 percent in 2012, more than returns on local currency company bonds from any other Asian country, according to HSBC Holdings Plc indexes as of Dec. 24. Dim Sum debt beat the 4.8 percent on non-government Hong Kong-dollar notes and the 4.7 percent increase in similar corporate debt denominated in Singapore’s currency, the indexes show. The yuan notes lost more than 2 percent in 2011, the data show.

Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets, raised its 2013 expectations for the world’s second-largest economy to 8.2 percent, after factory production grew faster than expected. Western Asset, which managed $10.7 billion of Asian fixed-income assets as of Sept. 30, expects growth of between 7 percent and 8 percent, compared with an annual pace of 7.4 percent in the third quarter.

“China will successfully steer through the global head winds,” Chia-Liang Lian, Singapore-based head of investment management for Asia excluding Japan at Western Asset, said at a briefing in Hong Kong this month. Dim Sum “bonds are one of several pockets of value that we feel compelled to exercise as we go into 2013,” he said.

New World China

Growth is likely to accelerate to 7.8 percent this quarter, rising from the slowest pace in more than three years in the previous period, according to the median estimate of 43 analysts surveyed by Bloomberg. Industrial output climbed 10.1 percent last month while retail sales increased 14.9 percent, the most for both measures since March, according to data from the statistics bureau.

New World China Land Ltd.’s 8.5 percent yuan bonds due April 2015, which have the largest weighting in HSBC’s non-government index for offshore China debt, returned 11.7 percent this year, according to data compiled by Bloomberg. The Hong Kong-based developer of mainland properties is “cautiously optimistic” about the market in China after earnings rose 2 percent for the year ending June 30, the company said in a September release.

Average property prices may increase 7.8 percent next year, according to a report last week from Soufun Holdings Ltd., the country’s biggest real estate website owner. The government will support home buying for use by the purchaser while continuing curbs on speculation and investment, China’s official news agency Xinhua reported last week.

Sovereign Dim Sum

Stimulus measures to support China’s economy boosted growth in East Asia’s emerging nations this year and may continue to do so in 2013, Bert Hofman, the World Bank’s chief economist for East Asia and the Pacific region, told Bloomberg Television last week. Local-currency government bonds from India, Indonesia and the Philippines all gained more than 8 percent this year, HSBC’s gauges show.

The cost of insuring China’s debt against non-payment with credit-default swaps has fallen 82 basis points this year to 65 basis points as of Dec. 26, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The yuan has appreciated 1 percent this year, as of Dec. 27, less than predicted in December 2011 but still more than the Hong Kong dollar, Indian rupee or Indonesian Rupiah. Corporate Dim Sum notes have returned 8.3 percent in dollar terms as of Dec. 24, HSBC’s indexes show. Non-government Dim Sum yields fell 68 basis points this year to 4.25 percent.

Sovereign Dim Sum notes returned 1.2 percent compared to 2.8 percent for yuan notes onshore, the indexes show. China’s 10-year domestic bonds yielded 3.6 percent on Dec. 26, while top-rated companies pay 5.29 percent for similar-maturity debt, according to Chinabond indexes.

“Investors are now seeing returns that are actually quite attractive with the positive backdrop of the Asian economy,” said Gina Tang, Hong Kong-based head of debt capital markets for greater China at HSBC. “Renminbi appreciation will likely recur next year and yields from bond issues will probably have room to trend down from the current levels.”

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