Asia’s credit growth not yet a cause for concern: Morgan Stanley

Both IG and HY spreads across geographies widened over the last week. US and Europe IG widened by 4bp, while Asia IG widened by 2bp. Europe HY underperformed in the HY space, widening by 28bp. Asia and US HY widened by 23bp and 11bp, respectively.

Carry dominated excess returns for Asian IG corporates in June. On a YTD basis as well as in June, carry has been dominating the excess returns for Asian IG corporates, as negative capital gains pulled the excess returns down.

Credit growth in Asia is not yet a cause for concern
We don’t see credit growth as excessive, in spite of the many concerns being raised. In fact, we think the current slowdown in credit may cause bigger headaches. No major economy in Asia has seen excess credit growth comparable to what preceded the worst banking crisis around the globe. Indeed, in all four major economies that we track in our report – China, India, Korea and Australia – credit is starting to stabilise relative to GDP. This illustrates how tightened policy has already had an impact on credit and suggests that, if a crisis were to hit, it would be because too little was done too late, not because policy-makers were oblivious to the risks.