Asian credits caught in eurozone debt crisis

Respondents to FinanceAsia's web poll say that Greece's debt problems are hurting Asian borrowers.
Protesters wearing traditional Greek Tragedy masks voice their anger over austerity measures attached to an EU/IMF bailout package last week.
Protesters wearing traditional Greek Tragedy masks voice their anger over austerity measures attached to an EU/IMF bailout package last week.

Asian bond spreads hit 14-month highs last week as Greece's debt crisis spread around the world, and the ill effects could be here to stay according to respondents to our web poll last week.

Almost three-quarters of our readers said that Europe's debt crisis will hurt the appetite for Asia's sovereign borrowers, which has certainly been the case in the short term -- and it's not just the sovereign names that are suffering. The iTraxx Asia ex-Japan investment grade index had widened to 150bp by last Friday, which is its highest level since June last year.

Indonesia and the Philippines, both regular borrowers in the dollar market, also hit their highest levels since last summer.

Those moves were a panic reaction to the bad news coming out of Europe and were likely made worse by the trading chaos in New York last week, but our poll suggests that the downward pressure on Asian credits will likely be here to stay.

"While Asia is much stronger than Europe in terms of fiscal position, markets will nevertheless be affected by deleveraging flows away from emerging markets as an asset class," wrote Frances Cheung, a senior credit strategist with Credit Agricole CIB.

And such deleveraging may not stop just because the European Union and the IMF yesterday agreed on a €750 billion ($960 billion) emergency loan package to prevent the sovereign debt crisis from spreading through the euro zone.

However, in the long run investors might find better value in Asia's stronger fiscal story as Europe's debt crisis continues to wreak havoc across the continent.

In total, 74% of voters said that Asian sovereigns will be hurt by the crisis, while 32% said they will be helped and 4% said it would have no effect.

Photo by AFP.

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