Credit investors told to remain vigilant on risks

Here's why investors can't stay loose yet even as general sentiment says Asia's resilient to Euro crisis.

According to Morgan Stanley Research, the risk of eurozone disintegration suggests that Asian credit investors
need to pay more attention to funding coverage for corporates, banks and sovereigns. It notes that while Asia still fares well in global comparisons,  intra-regional risk profiles vary substantially.

Here's more from Morgan Stanley:

We find the stability in funding markets an encouraging difference vis-à-vis September/October last year. Systemic risks are high but funding is still flowing.

Our European economics team recently raised the probability of a eurozone break-up. Though this would diminish in the event of the formation of a co-operative government in Greece, therisk of contagion still remains high.

For Asian credit, the global funding markets represent the key source of contagion risk and encouragingly these are so far holding up well.

How eurozone stress turns into default risk in Asia

In a EU break-up followed by strong contagion, access to funding becomes the key performance differentiator in credit markets.

What we would do today, being still moderately constructive on Asian credit markets.

Our preferred trades are: (i) sovereign CDS curve flatteners, (ii) preference for long-dated exposures in
IG, and finally (iii) a ‘safe haven’ basket of corporates with strong funding profile, limited revenues sources outside of Asia  and below-average valuations.