We met some credit investors in HK last week as typhoon Hato made landfall.    - Overall, we sense some complacency, which is not surprising in a lowvolatility environment. Everyone thinks valuations are expensive, but stayinvested with low cash balances as inflows are neutral to slightly positive.    'Lower for longer' rates continues to be a consensus view, with the NorthKorea headlines and US debt ceiling debate being considered as just noise.    Even the RMB appreciation is not expected to impact the onshore China bidwith most of the USD cash balances sitting outside the country, and moreimportantly, the appreciation is not foreseen to last for long. Only one investorasked about short/sell ideas.    - Having said this, some did raise concerns on implications of liquiditywithdrawal from Central Banks once QE stops from Europe and Japan, and theFed starts balance sheet unwind. Positioning has turned defensive withoverweights in IG vs. HY and BBs vs. Bs. In line with this, there were limitedquestions even on the event driven names. Also, the hedge fund community isrelatively less sanguine on credit, instead focusing more on equities wither fordividend yields or higher growth potential if growth remains supportive. A feware even going short credit vs. long equities. The real money investors are stilllooking to diversify some exposure outside Asia, with interest in US HY,Australia and Latam (less so Middle East on account of the Qatar issue).    - In terms of topical items, supply is the flavor of the season as we know.    Potential China sovereign issue came up in almost every meeting, withmarkets expecting a size of USD2 billion for 10 year deal. There wasagreement with our belief that this might end up being positive for the highquality Central SOE bonds (assuming spread differential of 40-50bp), a spacewe have liked. Plus, investors are talking about the large pipeline of sub debtissuance from Chinese FIs. View on possible HY supply from China is moremixed, with some expecting issuance to pick up significantly in Sep, whileothers arguing that NDRC will put a cap on it. For recent new issues, IndonesiaHY got most traction.    - Sector-wise, we fielded many queries on: 1) Indian telcos (we like the IGplayers and dislike HY ones); 2) Indo property (reiterate our negative stancehere); 3) commodities (we remain constructive and retain our preference fornon-oil players); 4) China property (our Buys here are concentrated with large,high beta companies); 5) AMCs (we are still more constructive thanconsensus); 6) Frontier sovereigns (retain our liking for Mongolia over SriLanka) Otherwise, India and Indonesia retain their status as relative 'safehavens' within Asia credit.    We encourage readers to reach out to us for a more detailed discussion.

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