It is understood thatMr. Hou Mingwei has been awarded the Asian G3 Bond Smart Investor Award by The Asset for a total of 12 times, of which 8 times ranked first.Hou Mingwei said that in the current macro environment, such as uncertain trade situation and fluctuating interest rates, the biggest risk of investing in high-interest bonds is credit risk. Last year, the default rate in Asia was 2.5%. This year, it is expected to reach 3%, and it may be even higher next year and the year after next. It will reach 4%, 6%, so high-risk investment needs to be cautious. That said, we still have a way to find a low-risk, low-volatility strategy that is bullish on the value of Asian short-term high-yield bonds.

Hou Mingwei pointed out that 28% of the world's fixed-income investments have reached negative interest rates, and investors have to invest in high-yield bonds if they want to get higher coupons. Among global high-yield bonds, Asia (with an index yield of 7.2 per cent) is more attractive than the US (5.7 per cent) and Europe (3.5 per cent), according to Barclays' high-yield index. China, in particular, has an advantage. According to Morgan Stanley, the yield on China's high-interest bonds has expanded by 200bp since March 2019. Among them, the yield on china's high-interest real estate bonds is particularly prominent, reaching about 9 per cent, 10 per cent, 50 basis points higher than its long-term average spread.

Hou Mingwei thinksChina's monetary policy is directly linked to the spread of China's high-interest bonds.From 2008 to now, the cycle of releasing water and shrinking the table shows that the spread has widened when the table is shrunk, while when the government has released water, the spread has narrowed. Since the end of last year, China's loose monetary policy has had a positive effect on the value of China's high-interest debt.

However, after the expansion of yields, the risk of bond default increases gradually. Hou Mingwei pointed outHigh-yield bonds cannot be invested casually, and the most promising sector of Asian high-yield bonds is the real estate sector.

The possibility of default in China's real estate industry is moderate.The issuer is willing to repay the debt.

Hou Mingwei believes that the difference between investing in bonds and stocks is that stocks earn capital gains, and because the final value varies from person to person, the price risk is naturally high.Bonds are investments that pay principal and interest when they are due. As long as the credit risk is well controlled, the coupon earned can also provide a buffer for losses.He points out that in today's market, more than 30 Chinese property bonds are trading at a yield of more than 15 per cent, which means a cumulative default rate of 50 per cent over three years, and the risk of default has been exaggerated. In the three cycles that Mr Hou has experienced in his career, the default rate at the peak of credit default is usually 10 per cent and 11 per cent. A diversified portfolio with risk diversification, with an average coupon of 9%, will yield 18% if it matures in two years. This 18% coupon income provides a good cushion, and even if the default rate of the combination rises to 25%, the combination as a whole will not lose money.Therefore, Hou Mingwei believes that short-term Chinese real estate high-yield bonds are noteworthy investment sectors, but portfolio investment will be better than individual bond investment.

Hou Mingwei further pointed outBuying real estate debt not only depends on the credit situation of the issuer, but also pays attention to the policy risk.It has been 13 years since the first batch of overseas US dollar real estate bonds were issued in 2006, during which there were only two defaults. China has always relied on real estate to maintain its economic growth, and land sales are a source of income for many local governments, not to mention the fact that Chinese traditionally aspire to live and work in peace and contentment, so the real estate industry is continuously supported by the government. On the other hand, Chinese real estate developers who can issue bonds overseas are often the leaders in the industry, ranking in the top 50, with a strong overall strength.In particular, the offshore financing platform is very important to the long-term development of the issuer's business, and the company has a high willingness to repay its debts.

In addition, after the only two defaults, the repayment rate of housing companies is actually very high, much higher than the average in the United States and Europe. This is because the real estate enterprise land reserve is very large, but also very valuable. If a real estate company defaults, there are generally two ways to solve it: first, debt restructuring; second, liquidation. If it is a liquidation, the repayment rate is relatively low, which will be more troublesome for investors; if it is a debt restructuring, the new debt will usually be exchanged for the old debt, the loss is relatively small, and the land reserve can be used as collateral, and the new debt will still be valuable.

Slowing supply boosts the value of Chinese real estate high-interest debt from a technical point of view

After a two-year boom in the offshore primary market in 2017-2019, Mr Hou expects China's supply of high-interest-rate real estate bonds to be more moderate in 2020. As developers turn their attention to balance sheet optimization and strict regulation, the new supply of bonds will be mainly related to refinancing demand. Hou Mingwei saidSince last year, the NDRC has issued some policies to prohibit some issuers from issuing bonds to buy land in order to control land prices, but the aim is not to suppress issuers.In the long run, the policy will play a positive role in maintaining the stability of land prices, but in the short term it will cause some market fluctuations and reduce the circulation in the primary market. And the recent issuance of foreign bonds are relatively short-term, real estate enterprises refinancing pressure will be alleviated within 1-2 years.

In response to the government's regulation and control of housing enterprises, Xie Yazu said that housing enterprises have enough experience to deal with regulation and control, which can improve the cash flow of enterprises. Regulation is not necessarily a bad thing and may not be good for stocks, but if real estate companies can use the money from buying land to repay their debts, it will be a good thing for investors in real estate bonds. Hou Mingwei said that the main purpose of regulation is to maintain reasonable land prices, not to restrict the development of real estate developers. Not only do Chinese real estate companies have a low risk of default, but foreign issuers usually have Hong Kong equity platforms, meaning they have a strong ability to raise money abroad.

In addition to the Chinese real estate sector, Hou Mingwei is also optimistic about Indonesia's high-interest debt. The spread between Indonesian high-interest bonds and Asian high-interest bonds widened in 2019, and Indonesian high-interest bonds became more valuable after Indonesia's general election in April. Indonesia's credit fundamentals are stable and as the Fed cuts interest rates, Indonesia is less vulnerable to external risk sentiment. Moody's Corporation, S & P and Fitch, the three major rating companies, have consistently given investment grade ratings to Indonesia's sovereign credit since 2017, and its credit trajectory has been improving, Mr Hou said.