ASIA’S credit markets offer some of the best investment opportunities because of strong demand for financing, undervalued assets and high-quality issuers in the region, according to KKR & Co.
Defaults among Chinese property developers have reset asset prices, creating an attractive entry point compared with similar deals in the United States and Europe, Brian Dillard, head of Asia credit at the firm, Dengzhao Pan and Kristopher Novell said in a white paper published on Tuesday (Mar 12).
Demand for financing outstrips supply in Asia, as banks have tightened lending criteria and investor support has been subdued amid market volatility, KKR said. At the same time, defaults among several Chinese players have left back only high-quality issuers who require financing.
“It is likely that this dynamic will persist for the foreseeable future or may even intensify,” the US private equity firm said.
With about 56 per cent of the outstanding high-yield debt in Asia maturing in the next three years, and about 21 per cent by the end of 2025, there’s significant opportunity for players in both private and broadly syndicated markets, according to KKR.
The US$1.7 trillion global private credit market has become a serious rival to mainstream lending, attracting investors by offering higher, floating rates of return. While the Asia-Pacific share of assets is just a fraction of that sum, the rate of growth has outpaced that of other regions.
KKR sees opportunities in select sectors in China, such as large technology firms with positive net cash flows, and investment-grade insurers. Issuers in Hong Kong with offshore assets and more limited exposure to China may also have an upside potential, it said.
Asia’s economic outlook is gaining momentum post pandemic re-opening, with opportunities in business travel and tourism. A likely rate cut later this year by the US Federal Reserve will provide additional support to growth, KKR said. BLOOMBERG
