Chinese credit market continues to look attractive despite US sanctions, says Muzinich & Co’s Bastin

Cristina Bastin, portfolio manager of Muzinich & Co’s Asia Credit Strategies, comments of the outlook for the Chinese credit market…

Christina Bastin, portfolio manager of Muzinich & Co’s Asia Credit Strategies, comments of the outlook for the Chinese credit market…As the US imposes sanctions on certain Chinese entities with military links and alleged human rights violations, it is important to recognise that some of these entities do not even issue USD bonds. Additionally, majority of these are Chinese state-owned entities that will have ample access to domestic onshore bond funding and bank funding. Hence, in our view, we do not see a material impact of these sanctions on Chinese credits. We believe this is more of an equity story than a credit story.

Separately, we believe that the recent US ban on a Chinese social media app might be negative for sentiment towards the country, but will have a negligible impact on markets on a credit level. If we look at the total revenues of this social media app, it only generates 2 per cent of its revenues from the US.
 
China is also unlikely to carry out massive blanket rate cuts. We believe policymakers are more in favour of other sector specific and segment specific easing, as they have just announced a raft of supportive fiscal and liquidity measures for the semiconductor industry, such as tax cuts and refinancing support.”
 
Overall, we expect Chinese credit to perform in line with the rest of Asia credit and in some cases better; this is because several Chinese sectors have already experienced a V-shaped recovery, for eg Chinese property, and we also think that the risk of second wave of Covid-19 infections in mainland China have eased. In our view, China is simply ahead in its containment strategy given stronger control.