Hedge Fund in Focus 2024 by Bloomberg

Our portfolio manager Kenny Chung, CFA , recently spoke at Hedge Fund in Focus 2024 hosted by Bloomberg alongside with leading allocators and managers across strategies on navigating opportunities and challenges in evolving markets.

Kenny spoke alongside Sharnie Wong Carol Hu, Brendan Sullivan and Steve Li

Kenny explained on how the macro environment had benefited the credit market throughout the last 12 months with the transition from Credit Bear to Credit Bull Cycle. As rate has been stabilized, investors are more willing to go down the credit curve, given the credit spread among investment grade bonds has been tighter than pre-COVID level while the opposite happens in the non-investment grade universe.

On the other hand, the refinancing exercises of single B to triple C bonds also contributed to the prosperity in Asia Credit Markets throughout the past year. With the backdrop of favorable GDP growth in countries such as India, Indonesia and Japan, onshore banks are willing to provide the corporates fundings to fulfill their offshore debts, which generated an abundant amount of alpha in the area.

While the market has been focusing on the success in Indian and Japanese markets, the Asia credit markets have also experienced a rather healthy development. Kenny elucidated that after the property crisis in China that market has generally considered as the shrink of Asia Credit Market, there has also been an enlarging number of opportunities across the landscape, regardless of DM or EM. Apart from their GDP growth, the negative net supply in the space also encouraged more new issuance of offshore USD bonds such as Mongolian corporates which provide diversification in Asia Credit Markets.

‘Going forward, credit differentiation is deemed to return with the potential Fed rate cut in September’ as highlighted by Kenny. While Fed will likely cut the rate in September, it also signals a potential economic slowdown in the US. Investor will ‘flight for quality’ and drill into the fundamental and reasonable valuation of different bonds. Credit spread, especially HY bonds currently trading at 7% yield will decompress based on credit differentiation after a long period of compression in the last 12 months which will creates RV opportunities in the next 9 to 12 months.

To conclude, ‘Liability Management is the word of focus in credit market investment’ as Kenny stressed. The main lesson from the previous credit cycle is that the ability to pay does not guarantee the actual payment. Therefore, to sustain through all cycles, our research models have to be fine-tuned, adding weight on elements such as management quality and willingness to pay on top of traditional financial analysis, while technology and social media will continue to play an increasingly important role in investment research for the future.

The article is a market outlook for information purposes only and should not be regarded as an offer to sell or a solicitation of an offer to buy any security.