3ab8f2aafeb711dfb52c00215ad26546 25 July 2025 | 11:23PM HKT Asia Credit Trader The Changing Pattern of CNH Bond Issuance Once again, search for carry motives dominated, as Asia credit spreads continued their march tighter. Recent news and events support the notion that "Summer Goldilocks" conditions can further extend. We maintain the view that carry remains important, and refrain from adopting a negative stance. That said, with the recent spread tightening and the reset lower in volatility across global ri ...

Group 1: Gold Market Overview - Gold has outperformed the S&P 500 over the past 1-year, 3-year, and year-to-date periods, driven by geopolitical shifts and concerns over fiat currency stability [1] - Central bank demand, particularly from BRICS nations, is contributing to record levels of gold accumulation as these countries diversify away from US dollar-denominated assets [6] - Geopolitical tensions, including the Russia–Ukraine war and US-China relations, are increasing macro uncertainty, further supporting gold as a hedge against systemic risk [7][8] Group 2: Technical Analysis of Gold - Gold is forming a tightening bull flag pattern, with a potential breakout above $317.50 on GLD (or $3,475 in gold futures) signaling a major upward move [10] - The current price action indicates strong buying interest, suggesting that gold is on the verge of a significant breakout [2][10] Group 3: Top Gold Mining Stocks - Aris Mining Corporation is highlighted as a compelling opportunity, trading at 5.8x forward earnings with projected sales growth of 56% this year and earnings growth of 265% [12][13][14] - Agnico Eagle Mines, with a Zacks Rank 1, is noted for its operational consistency and projected annual EPS growth of 20.8% over the next three to five years, currently testing a breakout level [15][16][17] - Kinross Gold, also holding a Zacks Rank 1, is trading at 12.7x forward earnings with expected EPS growth of 21.2% over the next three to five years, presenting a GARP opportunity [18][22] - AngloGold Ashanti PLC has surged over 120% year-to-date, reflecting strong investor confidence and operational performance, also holding a Zacks Rank 1 [24][25][26] Group 4: Investment Outlook - The outlook for gold remains constructive, with prices nearing a technical breakout and strong global demand driven by macro trends [27][29] - Gold stocks are positioned as an attractive entry point for investors seeking diversification and exposure to rising commodity trends [29]

Investment Positives - Zhaojin Mining has resumed coverage with an OUTPERFORM rating and a target price of HK$27.00, implying a 27x 2025 estimated P/E ratio, indicating strong growth momentum as a leading gold producer and smelter in China [1] - The Haiyu Gold Mine, in which Zhaojin Mining holds a 70% stake, is expected to produce 15–20 tons of gold annually at full capacity, with the company's attributable output projected at approximately 10.5–14 tons, positioning it as one of China's largest gold mines [1][2] Global Expansion - The successful acquisition of Tietto Minerals and Xijin Mining marks Zhaojin Mining's global expansion efforts, with Tietto holding an 88% stake in the Abujar open-pit gold project in Côte d'Ivoire, expected to produce 5.28 tons of gold annually for the next nine years [3] - Xijin Mining operates the Komahun gold mine in Sierra Leone, producing 1.77 tons annually, which will help Zhaojin Mining leverage its experience for further global expansion, aiming for overseas profits to reach around 50% [4] Corporate Management and Efficiency - Zijin Mining became the second-largest shareholder of Zhaojin Mining in 2022, holding a 44% stake in the Haiyu Gold Mine, which is expected to create synergies in institutional mechanisms, investment development, and technological innovation [5] - A management reshuffle in 2023 has optimized corporate governance, leading to a decrease in the company's expense ratio since 2022, which, along with organic growth and external expansion, is anticipated to drive strong profit growth [5] Market Trends and Gold Prices - The trend of de-dollarization and potential interest rate cuts may support gold price growth, with falling real interest rates creating favorable conditions for gold investments [6] - Global central banks have been increasing net gold purchases, particularly from emerging countries, indicating sustained demand for gold investment [7] Financial Outlook - Zhaojin Mining's estimated EPS is projected at Rmb0.92 in 2025 and Rmb1.10 in 2026, reflecting a CAGR of 62%, with the stock currently trading at 20.2x 2025 estimated P/E [8] - The company is optimistic about its growth outlook, driven by its ability to convert quality resources into production capacity and long-term earnings [8]

Investment Rating - The report maintains a "Long" position on 3-year Chinese Government Bonds (CGB) in anticipation of dovish policy tailwinds from the People's Bank of China (PBoC) [2][28]. Core Insights - Chinese corporates are lagging in de-dollarization efforts, with a notable increase in net USD selling by exporters in May, but this was primarily due to reduced outright USD buying rather than increased selling [3][11]. - The PBoC's fixing strategy has shown a more measured pace in the recent decline of CNY FX compared to previous sharp DXY weakness, indicating a preference for FX stability [4][20]. - Structural demand for foreign assets by Chinese investors is driven by a search for yield amid a domestic shortage of investable assets, leading to a shift in interest towards less liquid bonds [28][30]. Summary by Sections Current Trade Recommendations - Long 3-year CGB (FX-hedged) initiated on March 7, 2025, with a current yield of 1.39% and a profit of +14 basis points [2]. CNY FX and De-dollarization - The recent decline in CNY FX aligns with the PBoC's fixing strategy, but the pace has been more controlled compared to past episodes of DXY weakness [3][4]. - Chinese corporates sold approximately $17 billion in USD in May, a significant increase from $6 billion in April, but still below seasonal expectations [11][7]. - The net FX settlement ratio showed only a marginal improvement, indicating a lack of urgency among corporates to convert USD [11][13]. FX Swaps and Liquidity - Corporates have increasingly utilized FX swaps to access CNY funding without losing the USD carry, reflecting a strategic shift in managing currency exposure [11][16]. - Onshore USD liquidity has become excessively flush, with interbank USD rates falling, making CNY financing via FX swaps more expensive than direct borrowing [11][19]. Market Conditions and PBoC Actions - Proactive liquidity injections from the PBoC have alleviated funding concerns for banks, supporting a favorable environment for front-end CGBs [28][30]. - The PBoC has reiterated its commitment to enhancing monetary policy support and maintaining ample liquidity, which is expected to continue influencing market conditions positively [28][30].

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific assets Core Insights - Uncertainty around US tariffs has intensified, with a recent court ruling against Trump's tariffs, suggesting potential risks of lower tariffs on China, but alternative authorities for tariff imposition remain [4][3] - Investor sentiment towards China remains negative despite a recent trade truce, with global investors showing interest primarily in sectors with clear earnings growth potential [9][12] - The People's Bank of China (PBoC) is promoting RMB internationalization as a strategy for de-dollarization, aiming to increase the RMB's share in goods trade to 40% [23][17] Summary by Sections Current Trade Recommendations - Long positions in 3-year CGB (FX-hedged) initiated on March 7, 2025, with a current yield of 1.49% and a profit of +4 basis points [2] Tariff and FX Market Dynamics - The FX market is experiencing a managed fix, with the CNY remaining stable against the dollar, tracking a narrow range of 7.18-19 [4][7] - The CNY has outperformed regional peers despite the broader dollar trend, indicating a degree of resilience in the currency [5][4] Investor Sentiment and Market Activity - Despite a normalization in export activities and a rebound in shipping prices post-trade truce, financial markets in China remain downbeat, with limited interest from local investors to repatriate dollars [9][17] - Local Chinese investors are hesitant to repatriate dollars due to weak economic fundamentals and low interest rates, with a notable shift from net buyers to net sellers of USD [17][25] RMB Internationalization Efforts - The share of CNY-denominated flows in goods trade has increased from 11% in 2018 to over 25% in 2024, driven by PBoC's policy push [23][27] - Commodity-related yuan settlement has risen significantly, indicating a growing trend towards using RMB in international trade [28][23]