We encourage investors to be aware of the technical and fundamental links between high yield credit and the challenges of the Chinese real estate market.
NEW YORK, November 24, 2021 (GLOBE NEWSWIRE) – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today presented its outlook for bank and high yield loans from the fourth quarter 2021. Entitled “Do high yield markets misjudge the risk of Evergrande?” The report explains why investors may be overly optimistic about the Chinese government’s ability to successfully manage Evergrande’s debt unwinding.
Among the highlights of the 16-page report:
While the Asian high-yield bond sector reflects concerns over Evergrande and other overstretched Chinese real estate companies in difficulty, other credit markets, which generally exhibit a positive correlation, have shown no signs of concern. .
This unusual situation represents market confidence that China will successfully handle Evergrande’s debt unwinding, but we believe they rule out the long-term effects of Beijing’s crackdown on over-indebted industries.
The US high yield market is no longer the home island that many participants see as such. Our research shows that a typical high yield issuer has 27 percent exposure to non-US revenue streams, with one sector showing up to 44 percent exposure. This interconnection means that issuers of the US High Yield Index are susceptible to a potential slowdown in Chinese growth through second or third order effects.
The abundance of central bank-induced liquidity may also cause U.S. high-yield investors to become risk-complacent, but central banks are set to withdraw some accommodations over the next 12 months, including the U.S. Federal Reserve. (Fed) by gradually reducing asset purchases. .
Very strong corporate fundamentals and improving economy keep us constructive in the US high yield bond market, but we recognize the risks as we move through the cycle.
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About Guggenheim Investments
Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $ 259 billion1 in total assets through bond, equity and alternative strategies. We focus on the risk and return needs of insurance companies, corporate and public pension funds, sovereign wealth funds, endowments and foundations, consultants, wealth managers and high net worth investors . Our more than 260 investment professionals conduct rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and under-tracked. This approach to investment management has enabled us to offer innovative strategies offering diversification opportunities and attractive long-term results.
1. The assets under management of Guggenheim Investments are as at 30.09.2021 and include a leverage effect of 17.9 billion dollars. Guggenheim Investments represents the following affiliated investment management companies: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC and Guggenheim Partners India Management.
There are risks involved in investing, including the possible loss of capital. The potential impacts of the COVID-19 epidemic are increasingly uncertain, difficult to assess and impossible to predict, and can lead to significant losses. Investments in fixed income instruments are subject to the possibility that interest rates will rise, causing their value to fall. High yield and unrated debt securities have a higher risk of default than investment grade bonds and may be less liquid, which can increase volatility.
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