S&P Global Market Intelligence (“Market Intelligence”) will begin to report trends in Probability of Default Market Signal (PDMS) for China A-share listed companies on a monthly basis starting in June 2021. The PDMS is based on the sophisticated share price-driven model of Market Intelligence, providing a point-in-time credit assessment of A-share listed companies. It offers strong early-warning signals and timely indications of risk in the secondary market. This article demonstrates PDMS trends for GICS^[1] secondary industries (referred to as “sectors”) and tertiary industries (referred to as “sub-industries”).

Chart 1: PDMS Trends of A-share Listed Companies by Sector

^{Source: Market Intelligence. PDMS is based on the share price-driven model; as of 15 June 2021. For illustrative purposes only.}

As shown in Chart 1, from early 2021 to May 2021, the risk trends of all sectors showed an initial upward movement followed by a downward movement, in line with the volatile fluctuation of stock markets around the Chinese New Year. The sectors with a higher PDMS included Consumer Discretionary, Materials, Utilities, Industrials and Communication Services. Those with a lower PDMS included Real Estate, Financials and Health Care. Table 1 shows the monthly change for each sector.

Table 1: Change in PD for Each Sector between February and May 2021

^{Source: Market Intelligence. PDMS is based on the share price-driven model; as of 15 June 2021. For illustrative purposes only.}

In May 2021, the credit risk for all sectors eased off somewhat compared to the month before. Energy, Financials and Materials posted a significant decline, while Communication Services, Information Technology and Utilities fell by a smaller amount. Significant changes were observed in the Energy and Utilities sectors compared to April. The Energy sector shifted from a stable state to a decline, while the Utilities sector dropped slightly after a drastic rise in April.

Chart 2: PDMS Trend of A-share Listed Companies by Sub-Industries

^{Source: Market Intelligence. PDMS is based on the share price-driven model; as of 15 June 2021. For illustrative purposes only.}

Chart 2 above shows the five sub-industries with the highest and lowest PDMS in May. Sub-industries with higher risks included Automobiles, Auto Components, Airlines, Hotels, Restaurants & Leisure and Food & Staples Retailing, while sub-industries with lower risks included Tobacco, Biotechnology, Insurance, Diversified Financial Services and Commercial Banks. Among the sub-industries with higher risks, Automobile and Auto Components have been at a high level since the beginning of 2021. Sub-industries with lower risks have stayed low throughout the period. Table 2 below shows the five sub-industries with the biggest declines in risk in May and the five with the biggest increases.

Table 2: Change in PD for Each Sub-Industry between February and May

^{Source: Market Intelligence. PDMS is based on the share price-driven model; as of 15 June 2021. For illustrative purposes only.}

Diversified Financials, Tobacco, Aerospace & Defense, Capital Markets and Health Care Services were the five sub-industries that saw the deepest declines in risk in May. Household Durables, Home Furnishings, Consumer Finance, Food & Staples Retailing and Hotel, Restaurants & Leisure were the five sub-industries with the highest increases in risk (among which, Household Durables had the smallest change in risk, but its absolute change was negative). In particular, the last three sub-industries listed in Table 2, which all saw a decline and then a rise in risk, are worthy of continuous attention in the future.