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Asia Credit:Select Chinese/HK AT1s undervalued,buy POSABK,ICBC Asia &Cinda

十月 12th, 2019  |  财经

AT1bonds of Asian financials, especially those in China and Hong Kong,
havevisibly underperformed their Snr and T2peers since early Dec-17and
the creditdifferentiation has narrowed to the point that most now trade
in a tight rangeof 4.6% – 5% YTC (excl. 19s-20s calls). We believe that
the ongoing weaknessof select Chinese and HK AT1s presents a buying
opportunity. Below wehighlight some of the trade ideas in light of the
recent market developments.

    Asian AT1s have underperformed their EM and DM peers

    AT1s of Asian financials are now trading in a narrow band as the
historicallywidest trading AT1s such as BEA Perp c22have tightened 60bp
YTC-wisesince Jul 2017, whereas a stronger credit such as ICBC Asia AT1s
haveactually widened 30bp in the same time period. Asian AT1securities
haveunderperformed vs. their EM & Australian counterparts (e.g. ANZ,
DubaiIslamic Bank, Banco do Brasil, VTB, Alfa Bank) as average YTC of
Asianfinancials has widened ~2.8% since end-Sep-17, whereas average YTC
of peerAT1s has in fact tightened ~2.5%. Postal Savings Bank
AT1c22stands out asthe biggest underperformer amongst all Asian AT1s as
its YTC widened~50bp since early Nov-17(Fig 1-3). PSB AT1s used to trade
flat to CITIC BankInternational c21and ~30bp tighter than Zheshang AT1s
in early Nov-17, butnow trades 永利网站平台,~35bp wider than the former and flat to
the latter. Similarly to PSB,Cinda c21AT1has weakened materially
YTC-wise as it used to trade ~50bptighter than AT1s of its own smaller
subsidiary Nanyang Commercial Bank 6months ago and now trades only ~10bp
tighter. We expect the creditdifferentiation between Cinda and the
weakening fundamental profile (albeitfrom a solid base) of NCB to
reflect in Cinda AT1’s valuations and expect CindaAT1’s YTC to tighten
by ~35bp to reach FV. We reiterate buy on Cinda Perpc21AT1s
(ask-price/ask-Gsp/ask-YTC of 98.8/261/4.76%).

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