Global bond markets are facing systemic risk amid tight liquidity that could sharply reduce the number of market makers in the event of large-scale redemptions.
The risk comes from low levels of risk-weighted assets given more stringent regulations after the 2008 global financial crisis, the Hong Kong Economic Journal reports citing Frank Tian, equity find manager of Aberdeen Asset Management Asia.
The proportion of credit-rated bonds held by banks to the size of the market has shrunk to 2.6 percent from 20 percent, Tian said.
Nonetheless, Tian is upbeat about undervalued banking plays and those that might be targets of mergers and acquisitions.
HSBC Holdings Plc. (00005.HK) is trading at 0.6 price-to-book multiples, with a dividend ratio of 8 percent and strong profitability.
Dah Sing Banking Group Ltd. (02356.HK) and other small and medium-sized banks are worth a second look because these are potential takeover targets, he said.
Tian said Chinese lenders are a policy risk to investors as regulators tend to use them as macro tools, reducing their ability to reflect their intrinsic value.
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