Looking Past the Fear, JPMorgan Sees Better Days for Asia Bonds

(Bloomberg) -- Investors in Asian dollar bonds can look forward to better times for the rest of the year, with junk corporate notes from the region likely to be the best performers, according to JPMorgan Chase & Co.

Analysts at the U.S. bank are forecasting gains to the end of the year for the different segments in the JPMorgan Asia Credit Index, including sovereign, investment-grade and high-yield corporate debt. Junk company bonds should return 2.2 percent to year-end, compared with 0.4 percent for investment grade and 0.2 percent for sovereigns, according to a June 15 report.

That said, full-year returns will probably remain negative, with investment-grade corporates losing 1.9 percent and high yield shedding 1.5 percent.

“Markets are moving on fear more than fundamental change for now,” JPMorgan analysts including Soo Chong Lim wrote in the report. “Some areas have touched the sweet spots for selected investor bases, in our view.”

Overall credit fundamentals for Asian corporates remain positive, judging by leverage, liquidity and interest-coverage ratios, despite a recent dent to market sentiment from a default by China Energy Reserve & Chemicals Group Co., according to JPMorgan. The U.S. bank urged investors to stay away from low single-B names, especially Chinese industrials, with a short track history in the dollar bond market.

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