HSBC's house view on the sovereign debt crisis

As Europe continues to deliver a series of band aid solutions to an ever deepening sovereign debt crisis, Asian credit markets are seeing spreads widen in sympathy with the worsening credit markets in Europe and the US.

After the €110 billion ($145 billion) bailout package was issued to Greece on May 2, the market had thought the debt problems were on the road to repair. However with last week's relapse, coupled by escalating political tension in Greece, it was very clear that the band aid had come off.

In response, the European Central Bank on Monday announced a €750 billion ($962 billion) package to prop up the struggling sovereigns across Europe. Initially this seemed to settle the markets, but in the past couple of days it has become clear that the markets remain fragile and it may only be a matter of time before there is another negative reaction.

Realistically, plugging a debt hole with debt does not seem like the long-term solution needed to get the region and the globe out of its rut. But the latest move has bought more time for the EU governments to hopefully identify a clear exit out of the crisis.

FinanceAsia sat down and spoke with HSBC's Dilip Shahani, head of global research for Asia-Pacific, and Sean Henderson, head of debt syndicate for Asia-Pacific, to get their perspective on what is happening in Europe and to hear what the implications are for Asia's debt capital markets.


What is your take on recent events in Europe?
Shahani: We've been writing since December that the Asian credit markets would face a correction triggered by external events and those specific to the region. We had minor wobble in late January that was believed to the necessary cleansing of weak position but we are in process of an even deeper correction as a confluence of events diminishes risk appetite for the moment.