Roubini's RGE says Asia corporate bond prices to decline

"Markets in Asia are operating on the assumption that in the second half things will improve," Arpitha Bykere, RGE's senior fixed-income analyst for the region, said in a phone interview from New York. "Our forecasts tell us yes, the second half will be better than the first, but there won't be a significant improvement in company sales or credit liquidity."

Spending in countries including Singapore, Malaysia and Indonesia will decline as more people lose their jobs, according to RGE, the analysis group chaired by New York University economist Nouriel Roubini, dubbed Dr. Doom for predicting the credit crisis. With a "double hit" of maturing debt and lower income from sales, corporate defaults will rise, Bykere said.

JPMorgan Chase & Co.'s Asian Investment-Grade Index has risen 12.5 percent this year while its spread over U.S. Treasuries narrowed 3.07 percentage points to 3.93 percentage points. Asia-Pacific bond sales excluding Japan rose 89 percent to US$301 billion since Jan. 1 as investors recovered from the shock of Lehman Brother Holdings Inc.'s collapse in September, according to data compiled by Bloomberg.

The global economy will shrink 2.9 percent this year, more than an earlier forecast of 1.7 percent, the World Bank said on June 22. Singapore, weathering its deepest recession since independence in 1965, expects two in five companies to cut wages if conditions worsen, the Ministry of Manpower said on June 30.

Indonesia's exports, which account for one-third of gross domestic product, fell 28 percent to US$9.26 billion in May from a year earlier, the Central Statistics Bureau said Wednesday. The economy of Malaysia, Southeast Asia's third-biggest, shrank 6.2 percent in the first quarter as exports fell.

"Spreads for investment-grade corporates in Asia have narrowed when, on the whole, access to credit hasn't improved very much," Bykere said. "We believe this improvement doesn't really match the fundamentals."

While Singapore companies are more vulnerable to an export slowdown because they lack a large domestic market, their refinancing risk is lower than in neighboring states due to the concentration of banks in the city-state, according to Bykere.

"It's much easier to meet with lenders because of the country's position as one of Asia's financial hubs," she said. "While from an export point of view we are more bearish on Singapore, in terms of dealing with debt-related issues we are more bullish compared to other ASEAN countries."

As well as Singapore the Association of Southeast Asian Nations, known as ASEAN, comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand and Vietnam.

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