China’s policy easing to date has been slower than we had expected. However, it is moving in the right direction, which is significant at a time when much of the rest of the world is hiking rates and unwinding quantitative easing. Volatility, defaults and bond exchanges will likely remain high. The fresh Covid-driven strict lockdowns experienced in key cities in China will be another driver of volatility, as lockdowns will naturally delay housing activity, reducing the short-term impact of easing.
Despite this, we are now cautiously optimistic that the incremental easing measures and depressed prices will mean that our Asia credit exposure will be one of our better performing allocations this year, with the additional benefit of being lowly correlated to other credit and equity markets.
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