- One in three junk-rated notes in Asia lost money this month
- Vedanta, Anton Oilfield, MIE bonds lead losers in January
Asia’s junk-rated dollar bonds are trading within a cent of a four-year low after a global market selloff this month left one in every three notes with losses.
Average prices of company debentures in the region fell to 93.55 cents on the dollar on Jan. 15, following a seven-day slide to the least since Sept. 30, Bank of America Merrill Lynch’s Asian Dollar High Yield Corporate Index shows. A one-cent decline in the price will drag the gauge to a level not seen since January 2012.
Investor sentiment toward Asia is weakening as economic growth in China slows and all 24 emerging-market currencies tracked by Bloomberg drop against the dollar. The regional slump is raising concern that more Asian companies will struggle to service higher levels of leverage just as the Federal Reserve has started raising interest rates from near-zero.
“The key factors that are hurting sentiment on Asian junk bonds are China’s continued equity rout, the further weakening expectations on the yuan and the plunging oil prices,” said Gordon Ip, a Hong Kong-based senior fund manager at Value Partners Group Ltd. “We will see the weak sentiment go away only when those three factors stabilize.”
Global investors have pulled money out of bond and stock funds in emerging markets this year, BNP Paribas SA said in research notes to clients, citing data published by EPFR Global. They withdrew $25 billion and $56 billion respectively in 2015, the most in six years, the report said.
Last year, 112 note issuers defaulted on their obligations worldwide, the highest tally since 2009, according to data compiled by Standard & Poor’s. The oil and gas sector led the count with 29 delinquencies while those involved in consumer products contributed 12.
“We reduced risks in our portfolios one-and-a-half week ago,” said Adrian Zuercher, the head of asset allocation for Asia at UBS Chief Investment Office Wealth Management in Hong Kong. “The selloff in Asian equities makes Asian credits looking expensive. Sentiment can certainly dominate the next few days or weeks.”
Some 58 of the 178 members in the Asian junk-bond index fell this month, lopping off $546 million in market value and eroding $12 billion from last year’s peak in April, as global stocks and commodities weakened. Investors demanded 800 basis points, or 8 percentage points more than Treasuries, to own debt sold by borrowers without investment-grade ratings, up from 756 at the end of last year.
Notes sold by Vedanta Resources Plc, Anton Oilfield Services Group Ltd. and MIE Holdings Corp., whose fortunes are tied to commodity prices, led losses this month of more than 20 percent. China Fishery Group Ltd. topped gainers after it disclosed bids for its core assets in Peru worth $1.7 billion.