Corporate Debt’s Mystery Owner Unmasking
With the CEMBI off 2% in the first half as spreads over US Treasuries head toward 300 basis points, research houses have tried to emphasize crisis insulation through widespread local and dedicated investor ownership, which together control over half of eternal corporate bonds according to JP Morgan estimates. So-called global cross-over managers account for another 10%, while roughly 20% of holders are unknown, as the $100 billion benchmarked assets figure is likely understated. Asia has the top domestic base at 80%, and Latin America is at the opposite extreme at10%, while Europe and the Middle East are at 20% and 40% respectively. Under broader analysis of fixed income indices $275 billion may be the total corporate bond allocation including quasi-sovereigns from the dedicated category, and a breakdown of 250 public funds showed 25% exposure, half concentrated in energy names. Chinese onshore investors mainly buy their own issues, and Asia credit funds with over $100 billion in assets are another regional force alongside commercial and private banks. Insurers from Taiwan in particular with over half of portfolios in overseas bonds have also been active, and big Korean institutions likely buy their own paper. Pension funds in Chile and Peru may be leading corporate holders across Latin America, while in Europe Russian and Turkish managers absorb national issuance. US high-grade and high-yield funds participate at under 5% of totals and European counterparts have entered at greater weightings and lower asset sizes translating into a $20 billion inflow.
Gulf banks and institutions are comfortable with Cooperation Council dollar-pegged corporates, with an under 5-year maturity preference. Emerging market investors have otherwise been underweight for years with commodity price, sovereign support and corporate governance qualms. Fiscal balances are up with better oil and tax revenue, but ratings have not been upgraded as public debt ballooned 40% in Oman, Qatar and Bahrain. Qatar’s preparations for the next World Cup have not been interrupted by the trade boycott as long-term gas supply contracts provide ballast. Bahrain’s deficit is almost 10% of GDP and foreign reserves are minimal, as Saudi Arabia and the UAE are assembling another aid package after extending one to neighboring Jordan after another Syria refugee influx. Saudi Arabia’s Aramco IPO was again a hot item as MSCI elevated the stock market to the core universe next year, as the royal family was also pressured to boost oil output to cover the US Iran deal withdrawal. It won international plaudits by finally allowing women to drive, but drew condemnation on systemic gender inequality and disease and destruction associated with the anti-rebel war in Yemen, where a strategic port was the scene of recent fierce battle. In the crossfire Iraq has escaped notice, after elections should keep the al-Abadi government in place in coalition with a Shia cleric previously in opposition. The Chinese will offer $10 billion in aid for an oil pipeline and other projects, as the post-ISIS reconstruction tab was put at $90 billion at a donor conference. The IMF program missed targets to delay disbursement before the polls, in contrast with Egypt where fiscal and structural milestones continue to be met with a possible accord beyond 2019, when two dozen state company exchange listings will seek new ownership.