7. What has the Chinese government actually done to support the economy?
Tax cuts for businesses and consumers, targeted support from monetary policy, and a commitment to invest in infrastructure projects are just some of the policy initiatives enacted recently.
Looking specifically at credit markets, China's National Development and Reform Council (NDRC) has let high-quality privately-owned enterprises (POEs) issue enterprise bonds.
This is a significant change because it opens up a new funding channel in addition to corporate bonds and medium-term notes (MTNs).
Additionally, the People's Bank of China (PBoC) has increased relending and rediscounting quotas by CNY 100bn and introduced targeted medium-term lending facilities (TMLFs) for small-and-medium-sized enterprises and private companies to increase longer-term funding and cut banks' funding costs.
8. What countries/sectors are you over/underweight in your Asia HY strategy?
At the country level, we are overweight China, Indonesia, while underweight India, Sri Lanka, the Philippines, and Malaysia.
At a sector/industry level, we are overweight China real estate, Indonesia corporates and financials.
We are underweight to China state-owned enterprises, as well as corporates in the Philippines and India.5
9. You are overweight in China real estate, isn't that risky now that the market is slowing?
From an aggregate national perspective, official data from the Chinese government show that sales momentum is clearly slowing. Based on anecdotal evidence we have seen on research trips, conversations with company managements and due to weaker macro backdrop, we expect sales to continue to slow.
Looking into 2019, we wouldn't be surprised to see a slight drop in overall national sales, but we don't see that as a reason to turn cautious on China's real estate sector.
From a credit perspective, we believe three factors define the outlook for China's real estate developers.
Firstly, Chinese real estate developers are in a very different state now compared to the past cycles.
Many of the companies we favor have grown their market share, scaled up their operations and have improved their funding channels.
Real estate companies used to have local focus but have now widened their footprints nationally. This has helped them diversify geographical risk associated with localized property cycles and policies. Consequently, the leading developers are in a much better position to navigate market trends and cycles.
Secondly, inventory levels in this cycle look healthier compared to last property market cycle of 2014/2015.
Considerably lower level of land supply and brisk property sales during the upturn in 2016/2017 has helped the developers in clearing inventory backlogs.
Developers have also been more conservative about adding to their land reserves over the past six-to-nine months.
Finally, policy towards the property sector has remained restrictive and has sufficient room to readjust for supporting the sector, when the need arises.
We are already seeing some targeted policy support measures at the local levels in China.
Given the importance of property sector towards economic growth and local government finances, we expect the pace of policy relaxation may accelerate if there is any material weakening in the sector.