This article is edited from Gao Sheng Research newspaper "Singapore Investor meeting: cautious optimism"

1、It doesn't matter whether the trade negotiations are reached or not.2020Year: cautious optimism

Trading in Asian credit markets has been weak over the past week due to the unpredictable outlook for a Sino-US trade agreement and risks from China. In particular, the spread between investment grade bonds and high-yield bonds has widened, while the spreads between Chinese local government bonds and Chinese state-owned enterprise bonds are relatively small. In the coming week, trade negotiations and risk issues will continue to affect confidence in Asian credit markets. But it's still predictable.Global growth will rebound and will be the main driver of capital markets in 2020. This will be good for high-yielding assets.

The US will decide by December 15th whether to impose a 15 per cent tariff on imports worth more than $150 billion, or reach a trade agreement, abolish or postpone the tariff. There has been no progress in the recent trade negotiations, but it is not a matter of urgency. Our US economics team expects that the tariff will not take effect, but is more likely to return some of the existing tariffs. The situation is likely to develop further in early 2020, but tariffs will not necessarily take effect by 2020, as the United States has postponed or cancelled four tariff increases this year.

2. The default of founder Group's US dollar bonds has attracted close attention.

On December 12, Peking University founder Group announced that it could not repay the principal and interest of 2 billion yuan of ultra-short-term financing bills (SCP) on schedule. According to Bloomberg, the grace period for SCP principal and interest delivery is 15 days, so the bond did not default. For offshore investors, however, next week's focus will be on coupon payments on 2021 bonds maturing on December 14. The bond has a size of 80 million euros and an interest rate of 4.75%.

Recently, Tianjin products Group Co., Ltd. launched a bond exchange and tender offer. The last time a Chinese state-owned company defaulted on its offshore bonds was about 20 years ago.

3. Increasing the holdings of Chinese real estate high-yield bonds is the consensus of investors.

It had been said that global growth would rebound by 2020. When Goldman Sachs Group met with Singaporean investors, most investors said that they attached great importance to high-yield bonds, the increase in their positions was moderate, and they had made handsome returns since the beginning of this year.

On the wholeHigh yield bonds will perform better than investment grade bonds in the future.。

Goldman Sachs Group's main points are as follows:

(1) High yield bonds are preferred over investment grade bonds.

（2）In terms of high-yield bonds, it is a consensus among investors to choose BB and B-rated Chinese real estate bonds.. Because Chinese real estate high-yield bonds provide the best risk / return characteristics. It can be seen that the industry is reasonably valued and the credit risk of Chinese real estate high-yield bonds is much lower than other market segments of Asian high-yield bonds.

Chart 1:BB lowest yield of China's high-yield real estate bonds (%)

Fig. 2 lowest yield of grade B Chinese high-yield real estate bonds (%)

（3）For investment grade bonds, the investment grade local government bonds of Hong Kong and Chinese mainland are the first choice.. However, in Hong Kong, while most investors find valuations attractive, as GDP growth comes under pressure, it may in turn put pressure on the income and cash flow of investment companies, and some investors believe that there may be room for further decline.

Figure 3 performance of global investment grade bond indices over the past ten months (5-year)

Fig. 4 Total amount of local government bonds issued in China

Fig. 5 net issuance of local government bonds in China

（4）3-5-year BBB companies will be more valuable, and more favorable market segments include Hong Kong, Chinese mainland enterprises and non-bank financial institutions, Indian companies and financial institutions, as well as South Korea's secondary debt. First, Goldman Sachs Group believes that in Asian investment-grade bonds, the credit range should be lowered to BBB-rated enterprises, which is recognized by most investors. Second, Goldman Sachs Group speculated that the yield on 10-year treasury bonds would remain at 2.25% by the end of next year, and some investors expected the fed to cut interest rates further, so they took a wait-and-see attitude towards shortening the maturity to 3-5 years.

Fig. 6 spreads between investment grade bonds and treasury bonds of China's BBB non-real estate enterprises

Fig. 7 spreads between BBB-rated corporate investment-grade bonds and treasury bonds in Hong Kong, China