Voted this year's best fixed income analyst, Stephen Cheng of UBS Warburg shares his views.
Why do you think your approach has proven popular with investors in the last couple of years?
One thing that's stood out is that we have been fairly consistent in terms of our approach to research and our breadth and depth of coverage. We have been fairly explicit in our views and recommendations. We have a daily commentary which is a very important vehicle for us to launch our views and trading ideas. Plus we do a lot of fundamental research which is more in-depth and gives a longer term view.
Another strong feature of the team is the high level of co-ordination between research, trading and sales. We work very closely with sales and trading and this allows us to get a good sense of what is happening in the market and what our customers are anticipating and expecting.
You have garnered a lot of votes, so is there something about your personal style that investors appreciate?
Hard work from the whole team is key. I don't think a one man approach is sustainable anymore. It's all about the team.
You've been doing this for a while now. Is that not a factor?
It helps. When you have a long-standing relationship with some of these clients they understand your style, and approach and over time we have proved that our research is independent and not skewed by our own trading book or what our bankers are thinking. Clients recognise that as a strength.
I have been in the credit industry for 10 years. I started as an accountant with Deloitte Touche and then moved to Swiss Bank Corp. I have been here since then.
What are the three corporate credits that you feel offer good value in 2003?
We still feel that bank sub-debt still trades cheap relative to the corporate credits and compared to global counterparts. One name we do recommend is Citic Ka Wah, which has perpetuals trading at 430bp over treasuries, and we feel that is one of our top investment grade picks.
Another name we would fit into that category is Maybank in Malaysia.
Another thing we are looking at is some of the smaller borrowers that are unlikely to be repeat borrowers and will benefit from rarity value but give the Asian investor base the ability to diversify. One thing I do recognise is that concentration risk is becoming more of an issue around the region.
Finally, on the high yield front, one of the names we do like is the APP Group. In particular we see opportunities in the operating companies. We feel a solution will be found in the debt restructuring in the next six to nine months. This is not the easiest credit to be comfortable with (for obvious reasons), but the necessary ingredients for a credit story re-rating appears to be formulating.
Where do you see sovereign upgrades or downgrades?
As far as ratings upgrade momentum goes, I feel we have largely peaked and I don't see great scope for further upgrades.
What's your view on Hutch and the volatile way it is trading?
The credit is trading based on the view that 3G operational risks are a concern, as is a credit downgrade. There is also the refinancing issue. Our estimate is that over the next four years this company has close to $13 billion of debt maturing. Obviously it is not all going to come from international markets, but some will have to be raised there. So this creates an overhang, which is reflected in the direction of its spreads.
At current levels of 250bp over, there is room for the spreads to widen again.
