Pulled debt sales fail to shake belief in Asia’s Goldilocks outlook

Three Asian bond sales pulled in a single day. In other economic cycles, it would be the sort of event that might help a reporter win a name for spotting early signals of far bigger trouble. But there are few signs the failures were a harbinger of something more serious.

This week three junk-rated borrowers — Chinese, Indonesian and Indian — pulled bond offerings, unhappy at their borrowing costs. For any issuer to withdraw a deal after launch is extremely rare. Emerging market sovereign credit spreads — the basis off which companies price their bond sales deals have been edging higher for the past three months, too.

Asian companies have also been borrowing record amounts this year in the dollar bond markets. Twenty years on from the Asian financial crisis, and ten since the western credit crunch that presaged the 2008 global financial crisis, that might augur badly, too.

Yet that has not been the whole picture this week. Asia’s emerging equity markets, as measured by MSCI’s Asia ex-Japan index, have rallied to a 10-year high as companies such as Samsung Electronics produce record profits. So far this year, the index has gained 27 per cent. On Thursday, the region’s currencies jumped after investors judged policymakers at the Federal Reserve took a dovish stance on interest rates, pushing a broad measure of the dollar to a 14-month low.

But this benign environment is making some nervous. After all, Asia began the year facing a strong dollar, a hawkish Federal Reserve and the fear that Donald Trump would impose the crushing trade tariffs he threatened throughout the presidential campaign.

With that backdrop in mind, it can be hard for emerging market investors to believe their luck. Treasury yields seem effectively capped until the Fed sounds a more hawkish tone, while the dollar is far softer than most expected back in January. Commodity prices have picked up and profits are rising. Even China’s economy is doing better than expected….

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