Since 2021, the high-yield bond sector in Asia has undergone significant changes, driven by a wave of domestic real estate defaults, Indonesian bond redemptions, and the rise of renewable energy in India. According to the J.P. Morgan Asia Credit Index (JACI), the total market value of the market has decreased from $1.2 trillion at the end of 2020 to $934 billion as of July 3, 2024. Despite the reduction in size, the credit quality has significantly improved, providing investors with more diversified regional and sector opportunities.

As of July 3, 2024, the proportion of BB grade high-yield bonds has jumped to 52%, a significant increase from 36% at the end of 2020, while the proportion of real estate bonds has dropped significantly to 16%. In terms of sector allocation, areas such as finance (26%), real estate (16%), consumption (12%), sovereign wealth funds (11%) and utilities (10%) tend to be balanced, and regional allocation is more diversified. The weight of Chinese Mainland is reduced to 25%, but it is still the largest market, followed by India (17%), Hong Kong (17%), Macao (11%), the Philippines (8%) and Indonesia (4%).

The Asian high-yield bond market has performed outstandingly, with shorter spreads, better credit, and comparable returns compared to similar bonds in developed and emerging markets. It has also created one of the best total returns of the year, with a total return rate of about 11% as of July 5th, leading similar bonds. The market benefits from lower default rates, government rebound policies, strong technical aspects, and positive events, and it is expected that default rates will slow down in 2024.

Although the credit conditions of some high-yield bond issuers have deteriorated and their ratings have been downgraded more than upgraded, they are mainly focused on real estate/local government financing platforms and Indonesian bonds, and the pressure has eased to some extent. Indonesia and some domestic enterprises effectively manage bond maturity through debt management and asset disposal, driving performance. The decrease in the issuance of high-yield bonds has prompted investors to seek higher yields while exploring broader opportunities such as emerging markets, developed markets, and local currency bonds.

We are optimistic about high-yield bonds in emerging markets, especially in the Asian market, but believe that there is limited room for further significant tightening of interest rate spreads, and total returns will still support returns in the second half of the year. Domestically, loose policies will help deleverage high-yield corporate bonds, while real estate needs to pay attention to the effective implementation of destocking policies and market reactions. We look forward to the government taking stronger measures to accelerate inventory digestion, stabilize housing prices, and promote sales recovery. If the measures are insufficient or aggressive, the market response will be completely different. The high-yield bond market in India remains optimistic.