For the first time in more than a year, companies in Asia are regarded as more creditworthy than their global peers, according to the Markit iTraxx Asia index of credit default swaps (CDS).
Data provider CMA said that the index fell below the average of four corporate bond risk gauges from around the world earlier this week. The Asian benchmark of contracts on 40 borrowers outside Japan has tumbled 58 basis points this year to 149 basis points (bps), the biggest decline among Markit Group indexes for the US, Europe, Australia and Japan.
The Markit iTraxx Asia index was as much as 74bps higher than the average of the other four indexes last October according to CMA, which is owned by McGraw-Hill Companies and compiles prices quoted by dealers in the privately negotiated market. The last time that the Markit iTraxx Asia index traded below the average of four global corporate bond risk gauges was June 2011, the other bond risk benchmarks being the Markit iTraxx Australia index, Markit iTraxx Japan index, Markit iTraxx Europe gauge and Markit CDX North America Investment Grade index.
The measure for Asia is comprised of swaps on 36 banks and non-financial companies ranging from China National Offshore Oil Corporation (CNOOC), China’s largest offshore energy explorer, to South Korea’s Hyundai Motor, as well as those on sovereign debt of China, Malaysia, Korea and Thailand.
The latest index reading is seen as a sign of confidence that economic growth in China will bolster the region as the rest of the world falters. As the world’s biggest economy after the US, China is stepping up efforts to support growth as Europe’s debt crisis dents demand for exports. A median estimate of economists surveyed by Bloomberg shows that China’s gross domestic product (GDP) is expected to expand by 8.2% in 2012, well above the projection of 2.2% for growth worldwide. Asia’s growth is forecast at 6.82%.
“China’s GDP growth is still the envy of most other countries and is more than sufficient to underwrite regional fundamentals,” said Mark Reade, an analyst at Credit Agricole in Hong Kong. “Many Asian corporates offer superior credit quality compared with companies in other parts of the world that have narrower CDS levels.”
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