Winners rationale

Most fixed income advisory desks at private banks across Asia-Pacific endured a torrid 2021. Volatility in the high-yield credit, a perennial favourite asset class among U/HNWIs in the region, was sparked in part by a liquidity crisis among some highly leveraged Chinese developers and left a number of PBs issuing margin calls to clients and de-risking portfolios.

One of the most astute in pinpointing the issues at the private sector Chinese developers, particularly the high yield names, was Morgan Stanley Private Wealth Management Asia. The US private bank turned cautious on the Chinese property sector at the start of the year after noticing red flags through Morgan Stanley Research as well as insight from its UHNW entrepreneur clients in China — including rising interest rates for onshore bonds, the issuance of opaque borrowing structures and the fact that policy tightening in the housing sector was not fully reflected in the market.

As 2021 wore on, Morgan Stanley PWM Asia began trimming clients’ leverage and exposure to high-yield names proactively, well ahead of most of peers. As a result, the bank did not see a single default at any issuer on the fixed income advisory desk’s solicitation shelf and managed to help clients mitigate potential loss during the period under consideration.

Because of the increased focus on the real estate sector, Morgan Stanley PWM Asia during the year made several enhancements to better keep pace with developments in China’s property sector. These included discussions with onshore credit specialists to better understand trends and issues on the ground; closer communication with the investment bank’s fixed income division; and enhanced frequency and types of client alerts.

The bank brought into play its global platform to make alternative recommendations to clients in the region as it steadily reduced the number of Chinese issuers on its solicitation shelf. Those included contingent convertible Additional Tier 1 (AT1) bonds issued by European financial companies as a means of capitalising on the continent’s economic recovery from COVID-19; US industrial and energy issuances as a way of playing the re-opening trade; and high quality perpetual bonds issued by Hong Kong companies.

While Morgan Stanley PWM Asia was unable to escape the worst of the volatility in high yield bonds, with its high-yield revenue for the year falling on an absolute basis, the bank significantly outperformed its peers in terms of top line from the fixed income business in the region.

For these reasons, Morgan Stanley PWM Asia is Asian Private Banker’s Best Private Bank – Fixed Income Advisory for 2021.