Mounting concerns about the financial health of one of the Chinese big four AMCs – China Huarong – has fueled a significant sell-off on the issuer’s bonds, with the risk of more market contagion in the world’s second largest credit market. Rumors of a corporate default have emerged, with investors now bracing for a potential restructuring of the company with some haircuts on bonds.
We do not believe the company will default, given its systemic importance, nor do we think there will be a restructuring at Huarong International level. Nevertheless, we acknowledge its deteriorating credit profile. We recommend not to give in to the current panic and to reduce exposures on strength.