JP Morgan Private Bank: Upgraded its view on the Asian high-yield market to neutral, continues to prefer balance sheet stable BB-rated companies

Li Zijun, Head of Asian Fixed Income Credit Strategy at JP Morgan Private Bank, stated that the Asian high-yield market has faced numerous challenges over the past few years, but the bank's outlook has been upgraded to neutral.

Li explained that the small scale of debt maturing in 2026, the reopening of capital markets, and the attractive yield premium compared to emerging market corporate bonds are factors indicating that the market is gradually returning to normal and that the asset class is emerging from a trough.

He added that the default rate has clearly peaked. After exceeding 10% for three consecutive years, it is expected to drop to 5.3% in 2024 and further decline to 3.5% in 2025. The bank's benchmark forecast for 2026 is 2% to 3%, indicating that refinancing pressures are manageable and total returns are expected to remain positive.

In terms of investment themes, he believes that Hong Kong real estate will benefit from declining interest rates, a rebound in the stock market, and the return of mainland buyers, leading to a gradual stabilization of the market; the Indian high-yield theme will benefit from long-term growth momentum and improvements in corporate fundamentals; and in Macau's gaming credit sector, successful refinancing in 2025, coupled with a recovery in tourism, will continue to improve credit conditions. The bank continues to prefer BB-rated companies with robust balance sheets