亚太地区信贷策略亚洲视角新兴市场货币走弱对的影响

1、Asia Pacific Credit Research20 August 2019Corrected Note (See page 25 for details)Asia Credit PerspectivesCredit implications of weaker EM Asia currenciesThe breakout of USD/RMB above 7 has dragged other EM Asia currencies lower, and we expect downward pressure to linger in the near to medium term.

2、Currency weakness would have multiple negative implications for Asia credit fundamentals,i.e. first order impacts such as heavier debt burdens and FX losses, and second order effects of slower economic growth due to currency volatility. Asian banks typically match the currencies of their assets and

3、liabilities, but second order effects pose a risk, though likely with a time lag. Asian corporates tend not to hedge their currency risks and weaker currencies would pressure those corporates with no natural hedges. HY corporates will likely bear the brunt of the pressure, especially China developer

4、s and Indonesia HY corporates that have a high percentage of debt denominated in USD. Currency volatility could also shiftAsia Corporate Research Soo Chong Lim AC(852) 2800-7387soo.ch.lim Varun Ahuja, CFA AC (852) 2800 6038varun.x.ahujaMatthew Hughart AC(852) 2800-6518matthew hughartFrank Pan AC(852

5、) 2800-0989frank.pan Tiantian Teng AC (852) 2800-7024tiantian.tengAsia Sovereign Research Arthur Luk AC(852) 2800-6579arthur.lukJ.P. Morgan Securities (Asia Pacific) Limitedmarket technicals, e.g. pushing up risk premiums for enticing more onshore demand for China USD assets.Indonesiacreditsand·

6、;Downward pressure on EM currencies to remain. Thebreakout ofUSD/CNY above 7.00 and the subsequent labelling of China as a currency manipulator by the US have led to increased volatility in the EM Asia currencymarket, after a few months of calm following the Fed pivot. Our EM Asia FX and Rates Strat

7、egy team expects USD/CNY to reach 7.35 by end 2019 and 7.40 by the middle of 2020, suggesting that there is still another 5% downside to CNY from the current level of 7.046. CNY weakness has also dragged along other EM Asia currencies. The INR that has weakened by 2.14% since August 2, followed by P

8、HP (-2.01%) and KRW (-1.18%). We expect downward pressure on EM Asia currencies to linger over the next few months. Such currency weakness would have multiple implications for Asia credit.Wider implications of second order impact than first order effect. Weaker EM Asia currencies would raise debt se

9、rvice burdens for issuers with local currency denominated operations, and would also lead to forex losses for those that do not hedge their currency exposures. Slower economic growth as a result of currency volatility would pose a broader challenge to fundamentals. China property developers and Indo

10、nesia credits that have high percentages of debt denominated in USD are most exposed, even though there are several mitigating factors, e.g. liquidity buffer for developers and partial hedging for Indonesia corporates. We believe that IG corporates are better positioned to cope with currency volatil

11、ity given their diversified funding sources and stronger credit metrics. Likewise, financial institutions tend to match their currency exposures of their assets and liabilities, but they remain exposed to second order effects, likely with a lag.·· Higher risk premium but positive technical

12、s. Besides fundamental impacts, we believe that currency weakness would also have a mixed effect on technicals. On the negative side, Indonesia credits are historically more sensitive to IDR movements and valuations could face downward pressure from increased currency volatility. On the positive sid

13、e, we believe China HY would benefit from increased onshore demand for USD assets if USD continues to strengthen against CNY. This positive technical factor could outweigh any marginal impact on credit fundamentals due to weaker RMB, as was illustrated by the sectors performance back in 2016.See pag

14、e 25 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that thefirm may have aof interest that could affect the objectivity of this report. Investors should consider thi

15、s report as only a single factor inmaking their investment decision.获取报告1、2、3、每周群内7+报告；当日华尔街日报、4、行研报告均为公开利归原作者所有，起点财经仅分发做内部学习。扫一扫关注 回复：加入“起点财经”群。Asia Pacific Credit Research20 August 2019Soo Chong Lim (852) 2800-7387soo.ch.limEM Asia currencies to weakenBreaking the psychological level. The breakout

16、 of USD/CNY above 7 has ushered in increased volatilities for the EM Asia currency market, bringing to an end several months of calm since the beginning of the year thanks to the Fed pivot. CNY depreciation has also led the US to tag China as a currency manipulator. Our China economist believes that

17、 the designation runs the risk of bringing the US-China confrontation to the next level. CNY is likely to drift lower in the months ahead, and our EM FX and Rates Strategy team expects USD/CNY to reach 7.35 by end 2019 and 7.40 by the middle of 2020.Figure 1: J.P. Morgan Asia Dollar IndexFigure 2: E

18、M Asia FX movement since August 21140.01112-0.12-0.11-0.40110-0.78 -0.75108-1.14 -1.18106104-2.01-2.1410220152016201720182019TWD THBIDRHKD SGD MYR CNH KRW PHPINRSource: Bloomberg.Source: J.P. MorganEM currencies would also feel some downward pressure. CNY weakness has reverberated through the EM Asi

19、a currency market, and we expect EM Asia currencies would also drift lower in tandem with CNY. While currency account deficit countries such as Indonesia and India remain vulnerable, other export-orientedcountries such as Korea andwould not be spared also.Table 1: EM Asia FX forecastEM Asia CNYCurre

20、nt7.0519-Sep7.219-Dec7.3520-Mar7.3520-Jun7.4INR71.36727373.574KRW1,2111,2301,2551,2551,260PHP52.3052.2552.7552.7553THB30.8531.331.531.531.75Source: Bloomberg and J.P. Morgan estimates. Prices as at August 19, 2019.Negative for credit fundamentalsWeak currencies would be credit negative for most Asia

21、 credits. Generally, Asian corporates do not hedge their currency exposures. Some exceptions are selected Indonesian HY corporates and China property developers that have put on some partial hedges. As such, a weak currency could pressure credit metrics by raising leverage ratios and lowering intere

22、st servicing ability. It may also have a non- cash impact on the bottom lines due to currency translation losses. In our view, most2TWD31.3431.8SGD1.381.41.411.411.41MYR4.34.32IDR14,21114,60014,80014,80014,900HKD7.847.857.857.847.85Asia Pacific Credit Research20 August 2019Soo

23、 Chong Lim (852) 2800-7387soo.ch.limIG corporates would be able to withstand such first order impact while HY corporates could feel more pressure. For some, whose input costs are linked to USD and revenues are denominated in local currency, they would also need to contend with a squeeze on profit ma

24、rgins to the extent they are unable to pass through cost increase to end customers. In our view, banks should be relatively sheltered from this first order impact given that most match currency exposures on both their assets and liabilities.One key determinant of this first order impact would be per

25、centage of total debt that is denominated in foreign currency. BIS data provides a good snapshot of foreign currency borrowings for the corporate sector as a whole, although USD bond issuers are likely to have higher exposures than aggregate data would suggest. Wecover specific companies in later se

26、ctions.and Singapore have thehighest currency exposures, reflecting their role as regional financial centers. Not surprisingly, Indonesian corporates have one of the highest exposures to foreign currency borrowings, accounting for close to 20% of total debt. Corporates incountries such as Malaysia a

27、nd Singapore have around 17% of their debt in foreign currencies, while India, Thailand and Korea are in the region of 7-8%. While China has the largest amount of foreign currency debt outstanding, this only constitutes around 6% of total debt. In our view, the problem for China corporates is the le

28、vel of their total debt (254% of GDP), and not composition of currency exposure.Figure 3: EM Asia - Total corporate debtUS$ in billion and as % of GDP, as at Dec 2018Total non-financial debtExternal non-financial creditsUS$ bn% of GDPUS$ bn% of GDP% of credit o/s1,300358%551152%42%Indonesia72170%146

29、14%20%Singapore1,013283%17348%17%Thailand761151%5711%8%Source: BIS, CEICCapital flow is another risk to monitor. Currency volatility could lead to capital outflows as foreign capital takes flight; compounding this, some locals may look to park assets overseas. We saw some meaningful capital outflow

30、back in 2015-2016 after China unpegged CNY. Such capital outflow was also compounded by unwinding of carry trades by China corporates. With most of these carry trades largely unwound, we believe that capital flow should be more muted. For Indonesia, some regulatory changes (such as new regulatory re

31、quirements implemented since then, e.g. IDR settlements of onshore transactions and hedging of near-term foreign currency debt maturities) should also lessen IDR volatility. In the past, locals were also rushing to buy dollars when IDR was weakening, and thus amplifying the impact of foreign capital

32、 flows. That said, high foreign ownership of Indonesia government bonds, which stands at US$70 billion (or 39% of total), could likely mean that IDR would remain more sensitive to EM sentiment swing.Fed and ECB easing should create room for monetary easing by Asia. Given improving current account ba

33、lances for non-commodity exporting countries and benign inflation trends due to lower commodity prices, most EM economies have plenty to room to ease their monetary policies to cushion the downside risk of the economy due to the disruption to the global supply chain. With both the Fed and the3South

34、Korea3,805238%28116%7%Malaysia648185%11031%17%India3,289123%2329%7%China33,196254%1,89714%6%Asia Pacific Credit Research20 August 2019Soo Chong Lim (852) 2800-7387soo.ch.limECB widely expected to start to ease their monetary policies, we believe that this should create more room for EM Asia central

35、banks to follow suit without risking major capital outflow. Such flexibility was not available back in 2015 as the Fed was then expected to liftoff.Second order impacts would be another pressure point for Asia credits. Besides the direct translation effect of weaker currencies, Asia credits, includi

36、ng banks and corporates, would also have to contend with the second order impact of weaker currencies, which could have even more adverse effects if currency weakness persists. While banks are relatively sheltered from currency translation given their largely currency-matched assets and liabilities,

37、 they may have to contend with rising NPLs due to economic weakness.Net positive for technicalsEM fund flows are sensitive to EM currency fluctuations. The recent weakness in EM currencies triggered partly by the CNY breakout has led to some outflow from EM bond funds including those in hard currenc

38、ies. We believe that this could be largely explained by sentiment swing. While this is negative for technicals, we believe that Asia credits should be less affected given they are largely owned by regional investors that tend to be sticky and less sensitive to EM sentiment swing.The only exception i

39、s probably Indonesia credits that tend to have higher than average ownership by investors outside the region, e.g. close to half of Indonesia primary deals (mostly quasi-sovereigns deals) in 1H19 were allocated to US and European investors versus 20% for Asia on average.Strong USD could lead to stro

40、nger demand for USD assets. On the positive side, the recent strength of USD vis-a-vis CNY could make China USD bonds more appealing to China onshore investors as was the case back in 2016 and 2017, after the China government unpegged CNY in August 2015. Moreover, China HY USD bonds are offering clo

41、se to 350bp higher yields than China onshore AA bonds.Figure 4: China HY USD bonds are offering close to 300bp wider than China onshore BBYTM in %111098765432015201620172018JACI China HY ytw2019China corporate bond AA 5-year ytmSource: WIND and J P. Morgan.4Asia Pacific Credit Research20 August 2019

42、Soo Chong Lim (852) 2800-7387soo.ch.limCurrency heat mapIndonesian HY corporates are most at risk due to sentiment swing, in our view. Consumer names that have a currency mismatch between revenue and input costs are most vulnerable. Gajah Tunggal is probably the most vulnerable of this mismatch even

43、 though it has partially hedged its USD liabilities. Most property developers have hedged their currency risks of their USD bonds using call spreads, and we expect IDR would be likely to keep within ranges for these contracts. That said, they would still need to deal with second order impacts of slo

44、wer economic growth and hence softer demand if IDR volatility remains elevated. One the positive side, some credits would actually benefit from a weaker IDR. For plantation and oil & gas companies, sales are denominated or pegged to USD while costs are partially denominated in IDR. As such, they

45、 should benefit if IDR weakens against USD. That said, we are only penciling in 2-3% depreciation in IDR vis-à-vis USD, and thus we are less worried about the actual impact on credit fundamentals. We see bigger impact due to sentiment swing, as happened in 2013, 2015 and more recently 2018.Figu

46、re 5: Impact of currency weakness on various sectorsCNHKINIDKRMYSGTHNegativeSlight NegativeNeutralPositiveSource: J P. Morgan.We believe that Indian corporates under coverage should be well positioned tocope, although steel and base mnames are an exception as they may feel pressurefrom broader commo

47、dity price weakness on USD strength as well as overall macro weakness potential. Renewables are hedged for their exposure which helps from aliquidity standpoint although their major shareholders returns would be affected (since most are owned by foreign shareholders). Other SOEs are exposed to vario

48、us degrees and we expect their ratings linked to the sovereign rating to remain intact. On the other hand, infrastructure assets such as ports and airports should be largely unaffected to even positively affected by INR depreciation. Similarly, pharma credits would be positively impacted from INR de

49、preciation vs. USD and other hard currencies., we see some pressure on HY industrial names, such as China Grand Auto, Car Inc, China Oil and Gas and Golden Eagle, which have high FX mismatches that are not actively hedged. West China Cement also has some currency risk but has reduced its exposures a

50、fter some partial redemption of its USD bonds.Others have either natural hedges (e.g. Honghua) or have put on partial hedges (e.g. Health & Happiness). IG corporates (ex-real estate) that have high foreign currency debt are either cash rich (technology companies) or have natural hedges (e.g. oil

51、 and gas sector) and hence should not be impacted materially.5Consumer Diversified Financials Industrial InfrastructureMand Mining Oil and gasReal Estate TMTTransportUtilitiesAsia Pacific Credit Research20 August 2019Soo Chong Lim (852) 2800-7387soo.ch.limOn China property, we see the developers und

52、er some stress, particularly those with high non-hedged exposure to offshore debt, ie. Shimao, China SCE and Logan. The first order effects would likely come through in the form of currency translation losses. As the currency depreciation reflects the escalating trade tension between the US and Chin

53、a, second order impacts from dampened homebuyer sentiment would likely be more material than the unrealized losses due to non-RMB exposure. Should the housing market move into a cyclical downturn, we believe that the regulators could again start loosening restrictions to support the sector.We see mo

54、dest risk to Asia financials from FX volatility. The biggest threat is from indirect effects, but these will take time to play out, and only manifest themselves after impacting corporate balance sheets or creating a drag on broader economic growth. We thus view these as a medium-term concern. We see

55、 very little to no immediate impact for banks, as we believe direct risks are likely to be well- managed given the highly regulated nature of the banking industry. Nonetheless, it will be important to closely monitor liquidity conditions and any disclosure from the banks themselves.6Asia Pacific Cre

56、dit Research20 August 2019Soo Chong Lim (852) 2800-7387soo.ch.limIndonesia CreditSovereign: still tied to IDR FX but beta reduced vs 2015 IDR depreciation episodeStill dependent on USD but more diversified in funding currencies. Indonesias macro stability has overall improved over the past 5 years,

57、though the current account deficit of 3% GDP remains a weak spot comparing to peers with similar credit ratings. There has been an increase in currency diversification of the stock of government external debt due to a rise in foreign ownership of IDR-denominated government securities, and the increase in issuance o