HSBC On EM Debt

HSBC also notes flow data favours Chinese and South Korean debt

• "We continue to advocate both the decoupling and diversification attributes of China bonds vs global bonds as well as debt sustainability and a slow-down in sequential growth momentum in China. We continue to recommend buying 30Y China Government Bonds. The flow-of-funds also reflects this at least for the China and Korea markets. Offshore participants have bought USD1.9bn of Korea government debt so far in March. Notably, cumulative investments of USD10.6bn have been made into Korea debt since the beginning of the year, emphasising its credentials as a 'safe-haven" within EM. For data available a similar trait is evident for foreign demand for China Government bonds with inflows of USD9.5bn in February which followed a record month of USD18.8bn debt purchases in January. Indeed, excluding these two markets foreign outflows, on aggregate, in EM local government debt markets have accelerated over the past two months. A growing differentiation has been noted in investor sentiment towards EM high-yielding and low-yielding debt since mid-February, where high frequency data is available. Foreigners' reduced holdings of South Africa local, Indonesia and India government debt since this period with cumulative outflows of USD3.4bn, USD2.3bn and USD1.7bn respectively have been seen."