Asia Corporate ResearchSoo Chong LimACVarun Ahuja, CFAACFrank PanAC(852) 2800-7931(852) 2800-6038 (852) 2800-0989 soo.ch.lim@jpmorgan.comvarun.x.ahuja@jpmorgan.comfrank.pan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited| September 2019Asia Credit ResearchSee end pages for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making their investment decision.Asia High Yield CorporatesGood is expensive, bad is cheap AgendaPage1Summary view12China HY property43China HY industrial254Indian HY corporates295Indonesian HY corporates34Summary view Executive summaryA strong start that has since plateaued. The JACI HY corporates have chalked up a 10.5% total return YTD. Most of the gains were front-loaded in the first half, as the sector has largely moved sideways in 3QTD, as some carry was largely wiped out by price drops. We expect the HY market to move largely sideways, as we expect investors to remain cautious after chalking up healthy gains YTD, and many macro uncertainties also remain.Valuations are largely skewed by decompression and dispersion. While valuations have cheapened slightly in 3Q, with YTW backing up to 7.45% (+45bp), and credit spreads have widened to z+577 (115bp), these are partly skewed by the sell-off in weaker credits, as valuations for stronger names remain near their recent tights. Some select stressed names are over-punished, but we are not sure the timing is right (at least not in the final quarter) to add till we see some positive catalysts. China property sector turned more attractive. Despite being flat in 3QTD, the sector continued to demonstrate a high level of resilience amid escalating trade tensions and credit tightening on the developers. The current state of suspension remained wellbuffered by expectations of further rate cuts and Chinese regulators stepping in with their toolbox to cushion potential downside risk. We reiterate our preference for both established players and strong regional developers, as well as duration extension to 3-5 yearsfor yield enhancement. Within the China HY industrial sector, we remain selective, given the high level of idiosyncratic risk.India HY corporates should be defensive, but are not cheap. Our narrative for Indian HY corporates has always been that while yields are somewhat lower, the space offers exposure to blue-chip household names and hence like-for-like in ratings, the credits should trade bit tighter. We like select renewables like Adani Green and Azure, as well as select credits like Tata Steel, Jubilant, etc.Indonesia HY corporates have become bifurcated. Strong names are trading too...
