China’s ability to sustain fairly robust economic growth despite a massive property sector downturn is now facing new tests as global trade barriers rise, and domestic demand shows fresh signs of weakness.

China's economic transformation presents both challenges and opportunities for global markets.

We do not expect widespread contagion across China’s real estate or banking sectors despite the challenging outlook.

In late 2020, China launched an anti-trust campaign focused mainly on big technology firms, aiming to crack down on what the government views as monopolistic practices.

It will continue to be important to be an active investor during this period of transition and to carefully monitor the impact of policy on credit sectors.

Policy will continue to be carefully calibrated as China walks a tightrope between supporting growth and maintaining financial stability.

In prioritizing stability over all other objectives, China is borrowing from future growth while reducing policy ammunition to counter future shocks.

We favor Asian high yield over investment grade credits in spite of historical higher volatility since we view valuations as more attractive, particularly compared with U.S. high yield and emerging market peers.

In recent months China has rolled out tax cuts and incentives to boost consumption over investment while taking steps to further open its capital markets – a shift in approach that seems to accept a natural slowing in growth over time and to acknowledge the costs of an overreliance on credit growth.

We are focused on identifying country-specific opportunities and carefully selecting credit positions where we see value and very low default risk.

We expect an acceleration of strategic investments into onshore China bonds as these securities join emerging market and global bond indexes.