According to Reuters news agency, UBS Wealth Management pointed out in a commentary on Thursday that China Huarong’s recent debt problems have made the market increasingly concerned about the strength of the Chinese government’s support for state-owned enterprise financing, and it is expected that before the incident is resolved, state-owned enterprise bonds in general are likely to have a premium; in view of the credit events in China, this month the Asian investment grade bonds from “neutral “to “Not Positive” this month in light of the credit events in China.
The bank believes that despite recent reports suggesting the possibility of government support, the market has realized that the support may be less direct and therefore believes that the event is likely to increase credit stratification among SOE issuers and that a premium is likely to exist for SOE bonds in general until the Huarong incident is resolved in an orderly manner.
“The above incident has changed the market’s perception of government backing, triggering a re-pricing of less qualified SOE bonds and municipal bonds in investment grade bonds.” UBS added that “higher U.S. Treasury yields could also dampen total returns on investment-grade bonds.”
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