4th - Asian Fixed Income Summit Investing in Asia s Fixed Income Market September 217 Derek Armstrong Credit Suisse Head of Debt Capital Markets, Asia Pacific These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse Group AG and/or its Affiliates (hereafter Credit Suisse ).
Issuance Volume Evolution of the Asia Bond market 28-217YTD Asia (ex-japan) G3 bond issuances US$(bn) 25 US$(bn) 1,2 2 15 1 5 124 19 112 7 1 131 126 67 57 87 116 47 9 9 85 11 4 13 28 34 2 8 17 3 14 17 27 15 25 6 5 28 29 21 211 212 213 214 215 216 High Yield Investment Grade Sovereign Cumulative volume (RHS) The Asian debt capital markets have rapidly evolved at a CAGR 34% from the depths of the GFC to an attractive asset class for investors and a well-developed source of capital for issuers Source: Dealogic 175 17 15 168 17 184 13 116 54 217 9 6 3 1
Record issuances volumes 217YTD Asia (ex-japan) US$ annual bond issuance volumes (US$mn) 2, 15, 1, 5, - Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 215 216 217YTD Driven by low benchmark rates and a search for yield, we have seen a record year in 217, with issuance volumes already at a record high for any full year historically. Source: Based on a selection of EM-dedicated bond funds sampled by Emerging Portfolio 2
Resilient Emerging Market Bond Fund Flows Weekly Emerging Markets bond fund flows Weekly Flows (US$mn) 3,5 Cumulative Flows (US$mn) 5, 4, 2,5 3, 1,5 5 2, 1, -5-1, Jan-17 Feb-17 Mar-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Weekly Flows (LHS) Cumulative Flows (RHS) Emerging Markets dedicated bond funds have seen 28 consecutive weeks of fund inflows. We have seen a cumulative US$48.7 billion of fund inflows year-to-date with only two weeks of outflows this year Source: Dealogic 3
Historical benchmark US Treasury yields 1991 27 Yield (%) 9 8 7 6 5 4 3 2 1 1991 1993 1995 1997 1999 21 23 25 27 29 211 213 215 217 5y UST 1y UST 3y UST Source: Bloomberg Confidential 4 Credit Suisse AG and/or its affiliates
Historical benchmark US Treasury yields 1991 217 Yield (%) 9 8 7 5Y UST 1Y UST 3Y UST Current 1.76% 2.17% 2.75% Minimum.54% 1.36% 2.1% Median 4.14% 4.53% 4.96% Maximum 8.1% 8.36% 8.55% 6 5 4 3 Median 3Y UST yield: 4.96% Median 1Y UST yield: 4.53% Median 5Y UST yield: 4.14% 2 1 1991 1993 1995 1997 1999 21 23 25 27 29 211 213 215 217 5y UST 1y UST 3y UST Source: Bloomberg Confidential 5 Credit Suisse AG and/or its affiliates
Who are the issuers? Breakdown by geography 217YTD Breakdown by industry type 217YTD 8% 1% 5% 26% 8% 36% 6% 7% Total US$184bn 65% China South Korea India Indonesia Hong Kong Singapore Others 7% 6% Finance 9% Utility & Energy Government Total US$184bn 16% Real Estate Oil & Gas Other Despite regulations to curb the debt stock in China, Chinese issuers continue to account for the bulk of Asian issuance volumes Source: Dealogic Confidential 6 Credit Suisse AG and/or its affiliates
Who are the buyers? Breakdown by investor geography 217YTD Breakdown by investor type 217YTD 14% 12% 3% 5% Total US$184bn 74% Total US$184bn 52% Asia Europe U.S. 13% Fund Managers Banks Private Banks Others Significant participation by Asian investors in Asian bonds, with over 72% of deals issued in Reg S only format. In particular, Private Banking demand has become more prevalent Source: Dealogic 7
Indonesia s Progression to Investment Grade 28-217YTD JCI Index and Indonesia CDS performance JCI Index 7 Indonesia 5Y CDS Spread (bps) 12 6 1 5 4 3 4 2 BBB- BB BB+ by Fitch by S&P BBBby S&P 1 BB by S&P 2 by Fitch Ba2 by BB+ Moody s by Fitch Ba1 Baa3 by by Moody s Moody s Jan-8 May-9 Sep-1 Feb-12 Jun-13 Nov-14 Mar-16 Aug-17 JCI Index Moody s Rating Action Indonesia 5yr CDS Spread S&P Rating Action Fitch Rating Action This year, Indonesia has attained investment grade status from all three international credit rating agencies, and we have seen Indonesia s 5yr CDS spread fall to an all time low of 16 bps. Indonesia is currently rated Baa3 (Positive) / BBB- (Stable) / BBB- (Positive) by Moody s / S&P / Fitch. Source: Bloomberg 8 6 8
Issuance Volume Indonesian Bond Market 28-217YTD Indonesia G3 bond issuances (US$bn equiv.) 15 14.9 14.7 1 5 3.2 12.6 12.2 11.7 11.7 2.3 7.7 5.7 4.8 7.9 6.7 6.4 6. 3.8 11.7 4.2 2.9 1.3-3.4 6.9 7. 6. 5.5 4.2 4. 3.5 2.6 28 29 21 211 212 213 214 215 216 217YTD Sovereigns / Quasi-sovereign Corporates We have seen a record volume of Indonesian corporate issuers come to the market this year as companies take advantage of the recent sovereign upgrade by S&P to BBB- and the strong market backdrop Source: Dealogic 9
Key takeaways Record issuance volumes driven by: Low benchmark rates Investor liquidity Global search for yield Private banking demand Resilient Emerging Market fund flows Asian investors have become more relevant as participation in Asian bonds continues to increase Indonesia s improving economy has resulted in record bond volumes this year 1
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