Prefer Corporate to Government bonds; EM to DM
We are Overweight Emerging Market (EM) credit, given the brighter macro growth story and buoyant trade picture among EM economies. From a bottom-up perspective, we observe that EM corporates have bolstered their balance sheet structures and that their overall profitability is expected to improve alongside global growth. In addition, EM High Yield remains characterised by modest default rates and having credits of CCC ratings as compared to the Developed Market (DM) High Yield.
Stay within BBB- and BB-rated credit buckets. Amid yield spread compressions in favour of lower-risk rated credits in the past months, we continue to argue our preference for bonds of BBB over A ratings as well as for bonds of BB over B ratings, as they reflect better risk-adjusted returns. On an opportunistic basis, we would seek out credits at the lower end of the credit curve when they have either been temporarily overshadowed by idiosyncratic events, or when the market has placed unduly pessimism over their credit fundamentals.
The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.
DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No. 09.03.1.64.96422.