A veteran chief investment officer at a Hong Kong-based hedge fund with over $1 billion of assets under management says a wave of soured debt could hit the market, as economies in Asia slow and the U.S.-China trade war deepens.

“We see a distressed cycle coming,” said George Long, chief investment officer of LIM Advisors, who founded the firm in 1995, making it one of Asia’s oldest hedge funds. “Default rates have definitely picked up in China this year.”

The U.S.-China trade war has already stung the region. Singapore’s government revised down its forecast for 2019 economic expansion to almost zero, while Hong Kong missed estimates as simmering unrest also weighed on activity. Slowing growth has prompted central banks from Australia to India to cut rates.

Globally, distressed debt investors have faced a hard time finding soured debt to buy as central banks cut rates. But a number are raising funds to prepare for a potential downturn. Escalating trade tensions have prompted several observers to sound the alarm, including former Treasury Secretary Lawrence Summers who warned that U.S. and world economies are at their riskiest moment since the global financial crisis a decade ago.

As China’s $14 trillion economy slows, more firms have reneged on their debt obligations. The nation’s onshore bond defaults hit a four-month high in July.

As banks pull back from riskier firms, LIM Advisors has been pushing into private credit, which refers to lending to smaller companies. It also focuses on so-called special situations in the high-yield bond market, which can offer better returns during a sell-off, according to Long. The firm has shifted away from investing in investment-grade bonds using leverage.

The trade war is having a “big shock” on some sectors and affecting the Chinese economy, which could result in more defaults, according to Long.

“I’ve been through many credit cycles, what’s different about this one is the trade war and global tensions,” he said.

This story provided by Bloomberg News.