Top-10 investment strategies for 2019: #4
In the credit space, we have been recommending a defensive positioning in Asian credits in order to mitigate market volatility and reduce exposure to credit events for some time now. Our recommendation has been to focus on predominantly investment grade credits, especially in the BBB space. We believe valuations in the high-grade space improved significantly following the widening in credit spreads during 2018, and especially new issues that hit market in late 2018 offered good value.
While market performance so far in the year has taken some sheen off high grade valuations, BBBs remain our preferred trade in Asian credit. This is more so given that the likelihood of a change in risk sentiment remains high. The new issue market will likely once again provide opportunities.
The key risk to the trade is more rates than credit. Barring an unexpected spike in US treasury yields, we believe high grade credits will be well supported. We also see the risk of significant spread widening to be low, given credit quality of BBBs generally remains healthy.
#1 Bet on more rate hikes by the Fed
#2 Looking for USDSGD to hit 1.40
#3 Long Indonesian equities
#4 Support for high grade credit, especially BBB
#5 Bullish 10Y China govvies
#6 Short AUD
#7 We like short-dated Chinese BBs for carry
#8 India govvies curve to steepen
#9 Short CNY
#10 Long S-REITS as a defensive play
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