Asia’s post-selloff credits worth a second look 

Asian credits were hit especially hard with a sharp selloff triggered by rising US Treasury (UST) yields and widening credit spreads.

Gains made since early 2024 were wiped out as spreads on Asia Investment Grade (IG) and High Yield (HY) credits widened significantly. We are now seeing a slight improvement in sentiment after a 90-day tariff truce, though spreads remain elevated.

We see this as an opportunity to pick up cheap Asian High Yield credits.

What’s cheap, what’s not

Asia IG credits are not cheap yet. The extra return or spread investors get for buying top-rated Asian companies is still low compared to long-term averages. These bonds are offering slightly better returns than usual, but not by much. Compared to similar US bonds, they’re still priced a bit higher than they usually are.

As for Asia HY credits, they are beginning to show value. They are looking more attractive. The yields have risen to levels close to their long-term averages. Compared to US high yield bonds, they’re now offering more return than usual — a potential opportunity for investors willing to take more risk.

Strategies for Asia credits

We think it wise to stick with quality credits, particularly those with strong balance sheets and solid cash flow.

As for sector and duration, we prefer A-rated IG credits with short-term maturities (1 to 3 years) and defensive sectors like utilities, banks, and government agencies. We also prefer BB-rated HY credits and short-dated bonds, which held up better in the selloff.

Below is a list of our recommendations.

Asia-Pacific credit top picks

• Philippine Defensives 
  • SM Investments Corp. (SMPM)
  • Jollibee Foods Corp. (JFC)
  • Bank of the Philippine Islands (BPIPM)
• Asian Sovereigns 
  • Republic of the Philippines (ROP)
  • Kingdom of Saudi Arabia (KSA)
• Southeast Asian State-Owned Enterprises 
  • Petronas Capital Ltd. (PETMK)
  • Perusahaan Listrik Negara PT (PLNIJ)
  • PT Pertamina Persero (PERTIJ)
  • PT Bank Mandiri Persero (BMRIIJ)
• China tech & leasing
  • Alibaba Group Holding Ltd. (BABA)
  • Tencent Holdings Ltd. (TENCNT)
• South Korea Semi-Conductor 
  • SK Hynix Inc. (HYUELE)

Risks to watch

The tariff saga could worsen, and markets may suffer, with the flip-flopping and the retaliations. A deep US recession or stagflation scenario could push spreads wider, possibly to 165 basis points (bps) for Asia IG or 750 bps for Asia HY.

It is best to avoid names most exposed to US tariffs, as they underperformed during the recent turbulence.

Note: Summarized and rephrased from original CreditSights content. All rights reserved to the original analysts: Zerlina Zeng, CFA, Head of East Asia Corporates, and Stephanie Sim, East Asia Industrials and Strategy.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)