Asia junk bonds may return 14% this year: HSBC wealth arm

Hong Kong

HSBC Private Banking has joined a growing number of funds that are bullish on Asia's junk bonds and expect further gains after a strong rally in the first quarter.

US currency junk notes in the region have gained 5.6 per cent so far this year, in the strongest start since 2012, according to ICE BofAML data. The private wealth arm of HSBC Holdings Plc sees more scope for gains, fuelled by Chinese developers that are making progress cutting debt. "Stealth easing" of Chinese property curbs has also raised hopes of a boost ahead, even as new home price growth abated for a fourth straight month.

HSBC Private Banking predicts that Asian dollar junk debt could return 14 per cent in 2019 after losses last year, while Asia investment-grade bonds may return 7 per cent, according to Jeffrey Yap, Hong Kong-based regional head of fixed income, currencies and commodities, Asia.

The bank has seen rising demand for bonds from super-rich clients, according to Mr Yap. HSBC is building an ultra-high-net-worth team in Asia, and plans to hire for the new business. The wealth of the 137 people in the Asia-Pacific region on the Bloomberg Billionaires Index has jumped by US$135 billion this year.

The firm is positive on Chinese property US currency junk notes, which make up a high proportion of the region's speculative-grade debt, as deleveraging efforts by developers have been "on track", and their sales have been strong, said Mr Yap, whose firm manages US$309 billion in assets globally.

Average yields on Asia's junk dollar notes have fallen about two percentage points so far this year to 6.9 per cent, but they are still above the low of 5.9 per cent in the past 12 months, according to a Bloomberg Barclays index.BLOOMBERG