研究报告全文：FixedIncomeCreditCommentary5January2023CMBICreditCommentaryAsiaCreditoutlook2023-AfterdawnExecutiveSummaryAhorrendousyearin2022ACIGandACHYpostedreturnof-123and-199GlennKoCFA高志和respectivelyAsiaHYcorpsnotablyunderperformedthoseofotherEMswhileAsianIG85236576235corpsout-performedTheweaksentimentalsoledtosignificantdropinnewissuanceglennkocmbicomhkThegrossissuancein2022inAsiaexJPdecreased52toUSD1651bnthelowestsince2014Indeedthenetissuancein2022wasnegativeUSD1052bn2022istheCyrenaNgCPA吳蒨瑩firstnegativenetissuanceyearforAsiaexJPUSDbondmarketsince200885239000801LookingaheadweexpecttheAsianexJPcreditmarkettoperformnotablybetteraftercyrenangcmbicomhk2successiveyearsofmarkedcorrectionWeenvisagecreditfundamentalstoreboundoffthelowswiththere-openingofChinaIntermsofvaluationweseeasufficientJerryWang王世超marginofsafetyingeneralforAsianexJPcreditsatcurrentlevelsWealsoseemore85237618919supportivetechnicalasfundflowsituationturnedmorefavourableTheUSratehikesjerrywangcmbicomhkandthestrengthofUSDwilllikelybemoderatingandtheseshouldbemoresupportiveforEMstoperformThatsaidweshouldbeawareofnear-termvolatilityresultingfromthespikeinCOVIDcasesanddeathtollresultingfromthereopeningofChinaincludingHKandMacauthenon-consensualviewontheUSTratehikeswhichwillremainsensitivetodatasuchasCPINFPandglobaleconomicoutlookCMBIresearchexpectsamildrecessionintheUSeconomystartingfrom2Q23Underthisbackdropourpicksare-AMCsHRINTH425PERPHRINTH5525CCAMCL44PERPCCAMCL437525GRWALL395PERPSeeAppendix1AT1sBCHINA36PERPICBCAS358PERPDBSSP33PERPUOBSP3875PERPSHINFN5875PERPKBANK5275PERPKTBTB44PERPSeeAppendix2CarrentalsCARINCandEHICARWepreferCARINCdespiteitshighercashpricegivenCARINCsmoreresilienceoperatingperformanceChinesepropertiesCHJMAOCSCHCNDALWANGRNCHHPDLFLNGFORSEAZENVNKRLEandYLLGSPSeeAppendix3CorpperpsPCORPM46PerpUPLLIN525PerpNWDEVL615PerpandNWSZF575PerpOurpicksareonperpswithresethighcouponstep-upaswellaschanceofbuy-backtenderofferSeeAppendix4LGFVsPrefershort-datedbondsfromstrongerregionssuchasSHUGRP4323HKIQCL39923HZCONI31523andYWSOAO31523SeeAppendix5MacaugamingConvictionisloweraftertherecentstrongperformanceWepreferMPELsandSTCITYswithintheMacaugamingsectorSeeAppendix6SEAsiacommoditiesandrenewablesOurpicksareGRNKENsINDYIJ82525SAKAEI44524VEDLNsespeciallyshort-datedandsecuredVEDLNssuchasVEDLN23ssecuredVEDLN24and25TMTsShort-datedyieldplaysthroughbustedCBsOurpicksarePDD025andXIAOMI027BothPDDandXiaomiwereinnetcashpositionasatSep22CMBIFixedIncomefiscmbicomhk15January2023ContentsExecutiveSummary1Arecapof2022Alonganddauntingyear3LookingaheadArealitycheckon3drivers7FundamentalPolicypivottosupportfastereconomicgrowth7ValuationsMorecomfortablemarginofsafety10Technicalmixedsignalsbutlessnegativeifnotpositiveshouldbeafaircomment11OurPicks13Appendix1ChineseAMCsHRINTHsandCCAMCLsareourpreference15Appendix2OurpicksofAsianbanksAT1s17Appendix3ChinesepropertiesSalesrecoveryisthekey20Appendix4Corporateperpspicks28Appendix5LGFVPrefershort-datedbondsfromthestrongerregions35Appendix6MacauGamingConvictionlowerafterastrongrebound4125January2023Arecapof2022AlonganddauntingyearChart12022returnofACIGACHY800600400200-12300-200-199-400ACIGACHYSourceBloombergChart22022ICEBofAMLreturn00-50-100-938-1051-150-1483-1516-1669-200-1989-250ICEBofAMLAsianUSDCorpICEBofAMLEMCorpICEBofAMLGlobalCorpIGHYSourceBloomberg35January2023Asiacreditmarketwentthroughahorrendousyearin2022afterabadyearin2021WesawescalatingdefaultsespeciallyinChinesepropertysectorasharpriseininterestrateandsignificantfundoutflowIn2022ACIGandACHYpostedreturnof-123and-199respectivelyForAsianIGcorps2022wastheworstperformingyearsincetheindexinceptioninDec96ForAsianHYcorps2022wasthesecondworstperformingyearafter2008sincetheACHYindexinceptioninDec96AsianIGcorpsout-performedthoseofotherEMswhileAsiaHYcorpsnotablyunderperformedChart32022returnbysegment100605000-16-50-33-61-55-100-77-101-89-92-150-112-111-140-128-154-153-200-193-250-300-350-400-359SourceiBOXXBloombergNotsurprisinglyChinesepropertysectoristheworstperformerAccordingtoIBOXXthetotalreturnofChineseHYpropertieswere-359in2022comparedwith-61and-55ofIndonesianandIndianHYcorpsrespectivelyChineseHYLGFVsontheotherhandisanotableoutperformerwithapositivetotalreturnof6045January2023Chart4AsiaexJPUSDbondsissuanceamountUSDbn4000300020002073162316621454133913651295100010271058106541053939023324130727619300829516-1000-1052-2000IssueAmountMaturityAmountNetIssuanceNoteNetissuanceiscalculatedbeforetenderoffersbuy-backandcallputexercisesThetotalamountoftenderoffersbuy-backsandcallputexerciseswereUSD440bnandUSD622bnintotalSourceDealogicIntermsofnewissuancethegrossissuancein2022inAsiaexJPdecreased52toUSD1651bnthegrossissuanceamountwasthelowestsince2014AswehavebeenarguingnewissuanceisafunctionofmarketsentimentietheweakermarketsentimentandbondperformancethesmallerwillbetheissuanceamountandviceversaWithintheAsiaexJPuniverseChinafinancialsspaceisthesectorwiththelargestdeclineinissuancefollowedbyChinapropertyandSouthKoreafinancialsIssuancefromtheChinaLGFVspaceontheotherhandisanexceptionandonlyslightlydecreased23toUSD259bn55January2023Chart5AsianexJPissuanceUSDmnandperformance40010030080602004010024209121105658457-12000-7-12-100-20-200-4020062007200820092010201120122013201420152016201720182019202020212022GrossIssuanceLHSNetIssuanceLHSACIGReturnRHSACHYReturnRHSNotesNetissuanceiscalculatedbeforetenderoffersbuy-backandcallputexercisesSourceDealogicBloombergChart6MaturityprofileofAsianexJPUSDbonds7000642600050004000300026182221224220001790116910000020232024202520262027After2028SourceDealogic65January2023LookingaheadArealitycheckon3driversAswehavebeendiscussingwithclientsthedirectionofmarketisalwaysdrivenby3factorsfundamentalsvaluationsandtechnicalsuchasfundflownetissuanceinvestorsleverageetcWeenvisagecreditfundamentalstoreboundoffthelowswithChinare-openingIntermsofvaluationweseeasufficientmarginofsafetyingeneralforAsianexJPcreditsafterahorrendousyearin2022OntechnicalfundflowsituationshouldbeatleastlessnegativeifnotpositiveThemoderatingofUSratehikesandUSDstrengthwillalsoprovideamoresupportiveenvironmentforEMstoperformNonethelessvolatilitycouldremainhighinviewofthefollowings-ThepathforreopeningofChinaincludingHKandMacaucouldbebumpyasthenumberofcasesanddeathtollwillsurgeinthecourseofrelaxationWhilethegeneraldirectionofChinasdynamiczeropolicyisrelaxedwecouldseeback-and-forthinthecourseofrelaxationThenon-consensualviewontheUSTratehikeswhichwillremainsensitivetodatasuchasCPINFRandglobaleconomicoutlookTheevolvinggeopoliticaldevelopmentssuchasUkrainewarthetensionbetweenChinaandtheUSsanctiononChinesecorporatesetcNegativeheadlinessuchasdefaultsandnegativeratingactionsFundamentalPolicypivottosupportfastereconomicgrowthCAGRChart7Globaleconomicgrowthforecast108642024UKUSAIndiaBrazilJapanTurkeyRussiaPolandMexicoCanadaVietnamThailandAustraliaEurozoneIndonesiaSouthAfricaSouthSouthKoreaSouthSaudiArabiaSaudiChinaTaiwanChinaChinaMainlandChina2017-20192020-20222023-2024SourceWindCMBIResearch75January2023ThepolicypivotwithnewgrowthpushinChinawillsupporttherecoveryofherandAsianeconomiesCMBIresearchexpectstheglobaleconomiestobemoredivergentwithanotablystrongereconomicgrowthinChinaandAsiacomparedwithEuropeandtheUSAsperourhouseviewtheeconomicgrowthinChinadrivenbyconsumptionwillaccelerateto51in2023and47in2024from27in2022whiletheaverageeconomicgrowthofothermajorAsiaeconomiesIndiaIndonesiaandThailandin2023-24willbeintherangeof37-65comparedwith08and07oftheUSandEurozoneIndeedCMBIResearchexpectsamildrecessionmoreseverethanthatin2001intheUSstartingfrommid-2023Chart8US10Y3Myieldspreadandrecessionprobability45045340352302512015010510200120022003200520062007200920102011201320142015201720182019202120222023US10Y3MyieldspreadLHSRecessionprobabilityin12monthsRHSSourceWind85January2023Chart9USGDPshrinkageandunemploymentrateppt54245436326201821615101-01-07-072-14-223-264-31-38GDPshrinkageUnemploymentrateincreaseSourceWindWebelievethatoperatingperformanceespeciallyonayoybasisforAsiaexJPissuerswillgenerallybenefitfromChinasrelaxationofdynamiczeroCOVIDpolicyandsupportivemeasuresincurbingtheChinesepropertymarketspiralingdownwardTherecoveryofeconomicactivitiesandstabilizingpropertymarketshouldbepositivetothedemandforcommoditiesdomesticconsumptionsuchascarrentalMacaugamingsectorpropertymarketassetqualityofbanksandassetmanagementcompaniesAMCsetcTheseshouldoffsetthepotentialimpactofslowingglobaleconomyWhilecommoditypricesmaybemoderatingfromthepeakin2022thecurrentpricelevelsremainnotablyhigherthanthepre-pandemiclevelsTheseshouldcontinuetosupportgoodoperatingcashflowofcommoditycreditsandtheiraccesstofundingchannelsinthenear-termTherewillbemoredefaultsandnegativeratingactionsbutwebelievethelargestblackswansarealreadythere95January2023ValuationsMorecomfortablemarginofsafetyChart10ACHYACIGspreadandHYIGmultiple18001201600100140012008010006080060040400202000003-Jan-173-Jan-183-Jan-193-Jan-203-Jan-213-Jan-223-Jan-23ACHYspreadLHSACIGspreadLHSHYIGmultipleRHSSourceBloombergAsdiscussedAsiacreditmarketwentthroughahorrendousyearin2022afterabadyearin2021themarginofsafetyorrisk-returnprofileofAsiaexJPcreditsaremorefavorableespeciallyforHYIndeedweseeappealingvaluesinselectedChinesepropertiescarrentalMacaugamingAsianAT1setcWithimprovingfundamentalsweexpecttoseemorebottom-upinvestorstotakeadvantageofpricedislocations105January2023TechnicalmixedsignalsbutlessnegativeifnotpositiveshouldbeafaircommentChart11Fundflowof24AsiadedicatedFIfundsUSDbn15011195100835000-50-31-100-92-150-170-2001H202H201H212H211H222H22SourceBloombergOutofthe3driverstechnicalisalwaysthemostdifficulttogaugeespeciallyonthefundflowSincemid-Dec22wehavemetanddiscussedwithnumerousclientsinthelikesofglobalAMsPBsChinesebanksandChineseAMstheviewsonfundflowsituationsweremixedandpatchyWeunderstandsomeglobalAMsfundoutflowsituationreversedsince4Q22andnewAsiacreditmandatesweresetupwhilesomeRMsFMsexperiencedfundoutflowthroughout2022WewerealsotoldbysomeChinesebanksAMsthattheyhadfundsreadyfordeployingwhileotherssaidtheyremainedskepticalofthemarketRegardingPBstheLTVofmajorPBsespeciallyonHYshadcuttoaverylowlevelsinceearly2022carrytradesmaynotbecomingbacksoonasborrowingcostsareescalatingNonethelesstherareconsensusesamongstclientsare2023wouldperformbetterthan2022andfundflowislessnegativeifnotpositivetowardsthe4Q22Thisislargelyinlinewiththeestimationsoffundflowtracking24AsianorEMbondsfundswithexposureinAsiaTakingcuesfromourhouseofviewdivergenceofeconomicgrowthwithChinaandAsiagrowingfasterandmoderatingratehikeintheUSandpotentiallyweakerUSDweshouldseemorefavourablefundflowtoEMsin2023Recalledthatthegrossissuancein2022declined52toUSD1651bnandnetissuancedroppedsharplytonegativeUSD1052bnLastyearwasthefirstnegativenetissuanceyearforAsiaexJPUSDbondmarketsince2008andonlythesecondnegativenetissuanceyearoverthepast2decadesThenegativenetissuancemeansAsiaexJPUSDbondmarketshrank92insizecomparedwiththatattheendof2021giventheweakmarketsentimentandfundoutflow115January2023Whiletherehavebeenalotofdiscussionsonnewissuepipelineandwhethernewissuancewillincreasesignificantlyfromthelevelof2022OurviewaswehavebeenarguingisthatnewissuancewillonlycomeifthemarketsentimentisstrongenoughtoabsorbWeexpectgrossissuancetopickupasmarketsentimentisimprovingandthisshouldnotbeaconcerntotheperformanceofAsiaexJPUSDbondsmarketAsshowninchart5issuanceishighlycorrelatedtothemarketperformanceFurthermoreweexpectthetrendofnegativenetissuancetocontinuein2023asissuancefromChinesepropertysectorwilllikelybemutedwithsurvivorsofthesectortoturntoonshoreforfundingandthoseinstrugglewillnotbeabletoaccesstheUSDbondmarketChinesepropertysectoraccountedforanaverage16ofAsiaexJPUSDbondissuanceduring2017-2021In202321ofmaturityin2023willbetheChinesepropertysectorChart12AsianexJPmaturityandChinapropertymaturity800257002120600500151414400300101020055510000202320242025202620272028andAfterAsianEx-JPMaturityLHSChinaPropertyMaturityLHSPercentageofChinaPropertyRHSSourceDealogic125January2023OurPicksUnderthisbackdropweexpectabetterperformanceofAsiaexJPUSDbondmarketin2023despitethevolatilityOurtoppicksfor2023are-AMCsHRINTH425PERPHRINTH5525CCAMCL44PERPCCAMCL437525GRWALL395PERPSeeAppendix1AT1sBCHINA36PERPICBCAS358PERPDBSSP33PERPUOBSP3875PERPSHINFN5875PERPKBANK5275PERPKTBTB44PERPSeeAppendix2CarrentalsCARINCandEHICARWepreferCARINCdespiteitshighercashpricegivenCARINCsoperatingperformanceismoreresilienceandrecoveringfasterthanthatofEHICARChinesepropertiesCHJMAOCSCHCNDALWANGRNCHHPDLFLNGFORSEAZENVNKRLEandYLLGSPSeeAppendix3CorpperpsPCORPM46PerpUPLLIN525PerpNWDEVL615PerpandNWSZF575PerpOurpicksareonperpswithresethighcouponstep-upaswellaschanceofbuy-backtenderofferSeeAppendix4LGFVsPrefershort-datedbondsfromstrongerregionssuchasSHUGRP4323HKIQCL39923HZCONI31523andYWSOAO31523SeeAppendix5MacaugamingConvictionisloweraftertherecentstrongperformanceWepreferMPELsandSTCITYswithintheMacaugamingsectorSeeAppendix6SEAsiacommoditiesandrenewablesPrefermoreestablishedissuerssuchasGreenkoIndikaSakaEnergipickupoversovereignVedantaTheirnear-termcashflowandaccesstofundingchannelswillcontinuetobenefitfromcommoditypriceswhichremainnotablyhigherthanthepre-pandemiclevelsalbeitmoderatingfromthepeaksOurpicksareGRNKENsINDYIJ82525SAKAEI44524VEDLNsespeciallyshort-datedandsecuredVEDLNssuchasVEDLN23ssecuredVEDLN24and25TMTsShort-datedyieldplaysthroughbustedCBssuchasPDD025YTP73andputatDec23withaparityof443andXIAOMI027YTP68andputtableatDec25withaparityof309BothPDDandXiaomiwereinnetcashpositionasatSep22Table1SummaryofourpicksNextCallSectorTickerBondsPriceYTMYTCYTPPutdateHRINTH425PERP775-137-30Sep25HRINTH5501162595676---AMCsCCAMCL44PERP911-68-11Mar26CCAMCL43752596660---GRWALL395PERP934-80-31Jul24135January2023BCHINA36PERP961-53-4Mar25ICBCAS358PERP955-52-23Sep25DBSSP33PERP931-65-27Fed25AT1sUOBSP3875PERP975-66-19Oct23SHINFN5875PERP984-75-13Aug23KBANK5275PERP952-69-14Oct25KTBTB44PERP891-80-25Mar26CARINC975033124897196---CarrentalsEHICAR775111424689309---EHICAR70092126617228---CHJMAO728-92684-109---CSCHCN611-673391-458---GRNCH888-99063-109---VNKRLE792-99462-78---PropertiesDALWAN895-982161-185---FUTLANFTLNHD673-979134-232---HPDLF813-878212-237---LNGFOR682-82190-95---YLLGSP837-99390-111---NWSZF575PERP971103--31Jan24NWDEVL615PERP92497--16Mar25CorpPerpsPCORPM46PERP922208--19Jul23UPLLIN525PERP714211--27Feb25SHUGRP430508239731261---HKIQCL399042723989822---LGFVHZCONI31507302398681---YWSOAO315081123978708---MacauMPEL836-92683-96---gamingSTCITY734-869112-125---SEAsiaGRNKEN841-99777-88---commoditiesINDYIJ82510222598987---andSAKAEI44505052495978---renewablesVEDLN638-949235-386---PDD0120125949--581Dec23TMTsXIAOMI0121727823--6717Dec25SourcesBloomberg145January2023Appendix1ChineseAMCsHRINTHsandCCAMCLsareourpreferenceWecontinuetoseevalueinthesectorgiventheprovengovernmentsupportandtheincreasingstrategicimportanceofthesectorunderthebackdropoftherisingdefaultsonshoreWithinthespacewepreferlistedAMCsieHuarongandCindainviewofthehigherdatatransparencyandcontinuetostaywithshorter-tenorpapersinarisingrateenvironmentSimilartobankstheseAMCstendtoredeemtheirperpsonfirstcalldatetomeetinvestorsexpectationaswellastodemonstratetheirrefinancingcapabilitiesDespitetheweakeningfinancingconditionoffshoreespeciallysince2H22HRINTHredeemeditsUSD700mnperpsonthefirstcallinNov22andORIEASredeemedUSD250mnperpsinDec22SofarHRINTHCCAMCLandGRWALLcalledtheirUSDperpsonthefirstcalldateInourviewthepredictabilityforAMCstocalltheirperpsonfirstcallremainshighForbetteryieldplayswelikeHuarongsimprovingcreditstorywithbetterliquidityandaccesstofundingchannelsafterthegovernmentbail-outin2021Huaronghasbeenoptimizingitsassetstructurevianon-coreandnon-performingassetdisposalsIthasrealizedcRMB305bnviadisposingofHuarongConsumerFinanceHuarongInternationalTrustHuarongSecuritiesHuarongFuturesandHuarongXiangjiangBankin2022HuarongalsoobtainedapprovalforthefullcirculationofitsAsharesfromCSRCinOct22andHsharesfromHKEXinNov22TheseenhanceourconvictiononHRINTHsandourpickswithinthecurveareHRINTH425perpsandHRINTH5525forlowercashpriceandbettervaluationsForlowerbetaplayswithstrongerfundamentalswepreferCCAMCLsandourpicksareCCAMCL44perpsandCCAMCL437525WealsoseevalueforGRWALL395PERPcallableinJul24Table2SummaryofChinaAMCpicksBidpriceYTWYTCModifieddurationNextcalldateHRINTH414PERP775137137243092025HRINTH5120116202595676NA18NACCAMCL44PERP9116868353112026CCAMCL43802082596660NA19NAGRWALL395PERP9348080157312024155January2023Chart13YTWYTCofourAMCpicks1514HRINTH414PERP131211GRWALL395PERPHRINTH45810060326HRINTH3HRINTH512HRINTH3011625HRINTH478HRINTH49141113243405292411222634042727HRINTH5111925HRINTH414HRINTH2188110727093023YTCYTWYTCYTWCCAMCL44PERP7CCAMCL2CCAMCL44CCAMCL434CCAMCL438CCAMCL41403182302082503092702082860423255CCAMCL114CCAMCL2CCAMCL17801202412031825CCAMCL314CCAMCL3CCAMCL20120264CCAMCL401282703182712012028CCAMCL5022124CCAMCL4158051424303092420051152253354455ModifieddurationSourceBloomberg165January2023Appendix2OurpicksofAsianbanksAT1sWepublishedthreecommentariesonAsianbanksAT1ssinceOct22WestillseerelativevaluealbeitlessappealinginBCHINA36PERPandICBCAS358PERPwithinChinaG-SIBsDBSSP33PERPUOBSP3875PERPandSHINFN5875PERPamongAsianDMsKBANK5275PERPandKTBTB44PERPinAsianEMsgiventheirhighpredictabilityofreturnandmorebalancedrisk-returnprofileTable3SummaryofourBankAT1picksYrtoBidCouponresetCET1ratioRegionRatingFirstcalldateYTCTriggerLossabsorptioncallpxtriggerBCHINA36PERPCNBa134202522539615yrUST245MechanicalEquityconversion5125ICBCAS358PERPCNBa1923202527529555yrUST330DiscretionaryEquityconversionNADBSSP33PERPSGBaa1227202522659315yrUST192DiscretionaryWrite-downNAUOBSP3875PERPSGBaa11019202308669755yrUST179DiscretionaryWrite-downNASHINFN5875PERPKRBaa3813202306759845yrUST305DiscretionaryWrite-downNAKBANK5275PERPTHBa21014202528699525yrUST494MechanicalWrite-down515KTBTB44PERPTHBa30325202632808915yrUST353MechanicalWrite-down515SourceBloombergChart14YTCofourAT1picks14RCBPM65PERP12BNKEA5825BBNIIJ43CHIYBK8PERPPERPPERP10BNKEA5875CITNAT435PERPKTBTB44TMBTB49KBANK4MQGAUPERPPERPSHINFNPERPKBANKPERP6125PERP5875PERPUOBSP5275PERP83875PERPDBSSP33AXSBIN41PERPPERPWOORIBHDFCB37WSTP56425PERPBBLTB5PERPBOCHKLPERPPERP59PERPANZ675PERPBOCOHKYieldtonextcallcallnexttoYieldICBCAS32CINDBK713725PERPBCHINA36ICBCAS358PERP4PERPPERPPERPCIMWLB65CCB431PERPPERPCCB318PERP20012345YeartonextcallSourceBloomberg175January2023BuyBCHINA36PERPandICBCAS358PERPwithinChinaG-SIBsThereisnoprecedentontheprincipaloftheAT1sofChineseG-SIBsbeingwrittendownorconvertedintoequityThereisalsonoprecedentforChineseG-SIBstocanceldistributionandalloftheChineseAT1swerecalledontheirrespectivefirstcalldatesChineseG-SIBsAT1sofferhighlypredictablereturnbecauseoftheirlowerlikelihoodoflossabsorptionhighercertaintyofbeingcalledonthefirstcalldatesandscheduleddistributionsAmongstChinaG-SIBsAT1sourpicksareBCHINA36PERPandICBCAS358PERPinviewoftheirhigherYTCrelativelyshorter-tenorandbettertradingliquidityTheseAT1salsoofferdecentyieldpick-up43-52bpsovertheirseniorbondsPickDBSSP33PERPUOBSP3875PERPandSHINFN5875PERPamongAsianDMsAmongAT1sindevelopedmarketsDMinAsiaieHongKongSingaporeSouthKoreaandAustraliaOurpicksinthisspaceareDBSSP33PERPUOBSP3875PERPandSHINFN5875PERPinviewoftheirmorebalancedriskandreturnprofileaswellasshortertenorTheseAT1salsoofferappealingyieldpick-up170-250bpsovertheirseniorbondsDBSUOBandShinhanBankaresystemicimportancebanksintheirhomecountriesThesethreebankshavedemonstratedtheirabilitytomaintaincapitaladequacyevenatthetroughoflasteconomiccyclearound2008Weviewthatthechancetheybecomenon-viableisremoteoverthemediumtermPreferKBANK5275PERPandKTBTB44PERPinAsianEMsComparedwiththatofChineseG-SIBsandAsianDMsthereturnpredictabilityofAT1sinAsianEMsieIndiaIndonesiaPhilippinesandThailandarelowerTherewerelossabsorptionandnon-callincidentsforINRcapitalpapersofYesBankLakshmiVilasBankDhanlaxmiBankandICICIBankWenoticeIndiangovernmentsdifferentialtreatmentsinlossabsorptionforprivateandpublicbanksInthecaseofIDBIBankitsINRAT1wascalledearlyin2018beforepossiblelossabsorptiontriggeredbylowlevelofCET1ratioUnderthisbackdropourpicksareKBANK5275PERPandKTBTB44PERPinviewoftheirmorebalancedrisk-returnprofileAsAT1isarelativelynewinstrumenttoAsiaEMbankstrackrecordofcallanddistributionisrelativelylimitedHencewepreferAT1sissuedbybankswhicharemoreremotetolossabsorptiongiventheiramplecapitalbuffersandcomparativelymorestableprofitabilitythroughoutthecycles185January2023Table4CapitaladequacyratiosofourBankAT1picksasat3Q22TotalCapitalRatioIssuerRegionCET1RatioTier1RatioBCHINACN116139172ICBCASCN137153189DBSSPSG138145162UOBSPSG128138162SHINFNKR140147175KBANKTH151161182KTBTBTH156166206SourceCompaniesfilling195January2023Appendix3ChinesepropertiesSalesrecoveryisthekeyOurpicksofsurvivorsforthetimebeingIn11M22commercialhousingsalesinChinadeclined27toRMB1186tnThecontractsalesof36developersunderourradardropped49onaverageThereopeningofChinaandcommitmenttoensuretimelyhomedeliveriesinourviewarerightpolicymovestopreventtheChinesepropertysectortospiraldownwardInamoreoptimisticscenarioanotablecontractsalesrecoverycouldcomestartingfrom3Q23factoringintothetime-lagofstimulusmeasuresandlowbasefiguresof3Q22Henceinthenear-termthesurvivorsofthesectorwillbethosewithfundingaccessbeingresumedandmanageablenear-termdebtmaturitiesespeciallymanageableoffshoredebtmaturitiesasresumptionofoffshorefundingaccessappearstobemoreremoteUnderthisbackdropthosedevelopershavegoodaccesstoonshorefundingchannelsandmaturedinvestmentpropertyportfoliosascollateralsforoperatingloansCMBSandCBICL-guaranteedonshorebondissuancesandrelativelysmalloffshorematuritiesin2023willbebetterpositionedtosurviveuntilamorenotablesalesrecoveryOurpicksforthesectorareCHJMAOCSCHCNDALWANGRNCHHPDLFLNGFORSEAZENVNKRLEandYLLGSPTheseprovidemoredecentreturnthanothermajoritygovernment-ownedsurvivorslikeCHIOLICRHZCHandYUEXIUWeagreethatotherlowercashpricebondsinthesectormayofferbetterupsidebetaThatsaidwebelieveourpicksofferbetterdownsideprotectionincasesalesrecoveryfallsshortofourexpectationTable5Salesandfinancialconditions1H22ofourpicksContractSalesAdjLiabilitiestoUnrestrictedTickerYoYChange11M22NetGearingAssetsRatioCashSTDebtsCHJMAO-36645680151xCSCHCN-663579031xDALWAN-352501122xFUTLANFTLNHD-49484691174xGRNCH7720725232xHPDLF-28683600079xLNGFOR-27553681407xVNKRLE-33443686177xYLLGSP23575677224xNoteVNKRLECSCHCNandDALWANsfinancialdateisupto3Q22SourceCompanyannouncementTable6BasicinformationofselecteddevelopersUSDmnOSUSDBondsOSUSDBondsTypeTickernumberAmountIssuerRatingYTMState-ownedCHJMAO72900---84-109CSCHCN51521-NR-391-45820