Asian credit outlook: a bright spot in 2023

After 2022 marked one of the worst years on record for fixed income, Asia is expected to be the world’s bright spot in 2023. We believe Asian credit¹ reached a bottom in early November 2022 and is now on the ascendent due to China pivoting away from its zero-Covid policy and back towards a pro-growth stance, as well as the emergence of clear US disinflationary trends.

Covering macro and markets, our Asian fixed-income outlook for 2023 focuses on five themes:

• The global macroeconomic backdrop affecting Asian credit. We expect the US economy to slow down faster than markets anticipate as the historical hiking cycle begins to feed through. Strong fundamentals in Asia stand out and we see the region leading global growth in 2023. Supportive factors include: China’s re-opening, growth and investment in India and Indonesia, and room for some Asian central banks to cut rates before the US
• The outlook for China. China has significantly pivoted towards a pro-growth stance and is set for a full re-opening that will pave the way for a strong cyclical growth phase lasting into 2024. Although we see a further decrease in national residential property sales in 2023, we see this marking the end of the downturn for the property sector
• Expectations of USD-denominated Asian bond supply. Overall, gross supply in 2023 should improve relative to 2022. Still, various estimates point towards a negative net supply as maturities and coupon payments more than offset any new issuance. New issuance is forecast to be more skewed to investment grade
• The outlook for Asian high yield (HY). The Asian HY market has been significantly disrupted, mainly due to defaults among Chinese property developers. These defaults have led to a migration in Asian HY issuers from China to other regions and is likely to bring certain beneficial outcomes
• Our top picks. We share our top picks, split into alpha and beta names. Alpha top picks refer to names with wide spreads that are expected to compress and have clear drivers improving their specific credit metrics. Beta top picks are expected to witness spread compression as well, but do not have specific or outsized idiosyncratic drivers for fundamental credit improvement

To read our Asia fixed income 2023 outlook, please use the download button provided.

To watch the replay of our webinar with Dhiraj Bajaj, Head of Asia Fixed Income please click here.

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