May 31, 2017 / 9:38 AM / in 6 months

ASIA CREDIT CLOSE: Credits slightly tighter; Lenovo weak

HONG KONG, May 31 (IFR) - Asian credits traded slightly tighter on Wednesday, as the latest data showed that China’s manufacturing and services sectors expanded at a solid pace in May.

“Investment-grade credits in general traded 1bp-2bp tighter. Huarong’s bonds saw buying interest from real money,” a Hong Kong-based trader said.

The iTraxx Asia investment-grade index was flat at 90/91.

Lenovo Group’s bonds were weak on speculation that the Chinese PC maker is planning a buyout. Its 3.875% 2022s traded 5bp-10bp wider today, according to the trader.

ChemChina’s new perpetual bonds callable in 2022 were flat at a cash price of 100.5.

In the high-yield space, Reliance Communications’ 6.50% 2020s dropped 4 points today to a cash price of 65 bid after Moody’s downgraded the Indian company to Caa1 from B2 following disappointing earnings.

Hsin Chong Group’s 8.75% 2018s were flat at 42/46, despite the announcement of a plan to improve liquidity through asset disposals. The Hong Kong construction company earlier missed a coupon payment on the 2018s.

Rick Mattila, international head of market strategy for MUFG Securities, said Asian credit remains attractive to yield hunters for now.

However a combination of macro risk factors and gradual normalisation of central bank policies in developed markets could begin to weigh on sentiment towards the end of 2017.

”Whilst market technicals are currently supportive, Asian credit valuations are tight and macro risk factors remain, so we would nevertheless be selective.

We would avoid lower-rated credits at this point, given the substantial spread compression witnessed over the past 12-18 months.

While credit is expensive, investment-grade credit is effectively cheap relative to high yield in Asia,” Mattila said.

Reporting by Carol Chan; Editing by Vincent Baby

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