China’s share of Asia’s dollar junk bond market is declining rapidly after three years of property crisis, prompting investors to seek returns outside the debt-plagued sector and the country, according to BEA Union Investment.
The land-based real estate market has yet to bottom out as Beijing’s policy measures have mainly focused on supporting demand in big cities, instead of addressing the lack of financing for developers, Pheona Tsang said , chief investment officer of fixed income at the Hong Kong-based fund manager. . Further defaults on property debts cannot be ruled out, she added.
“There are still many choices in the high-yield Asian market that we can diversify into,” Tsang said in an interview with the Post. “Macau gaming is one of our overweight sectors as it benefits from China’s reopening. We like [credit in] major countries, including India and Indonesia.
BEA Union is the Asia-focused joint venture of Bank of East Asia and Union Investment, a unit of Germany’s second-largest lender DZ Bank. The company managed $7.6 billion in assets as of March 31.
Once Asia’s largest such market, snowballing defaults since 2020 have shrunk the universe of Chinese junk bonds by 85 percent, according to an index compiled by Intercontinental Exchange and Bank of America (BofA). , as the pool of bonds issued by mainland Chinese developers has dried up. up.
China’s shadow banking crisis could threaten broader economy, analysts warn
China’s shadow banking crisis could threaten broader economy, analysts warn
The index currently has 48 bonds worth US$18.4 billion, including 32 real estate bonds valued at US$4.8 billion. As of February 2020, the index tracked 238 bonds worth around $126 billion, including 187 bonds worth $100 billion issued by Chinese developers.
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Real estate problems in China: Evergrande files for bankruptcy protection in New York
Tsang manages the $182 million Asian Bond and Currency Fund, which had 43 Chinese real estate bonds in its portfolio as of Aug. 30, according to Bloomberg data. There were 105 in the first quarter of 2020, including those issued by Sunac China, Kaisa Group and CIFI Holdings, just before the Covid-19 pandemic and the country’s crippling “three red lines” policy came into force. Beijing industry.
Moody’s lowers outlook for China’s real estate sector, Fitch lowers GDP forecast
Moody’s lowers outlook for China’s real estate sector, Fitch lowers GDP forecast
“In the current environment, there could be more defaults among private developers,” Tsang said, given the new financial difficulties of Country Garden Holdings and Sino-Ocean, and recent fears of a possible blowout of the shadow banking sector in China.
His view echoes market concerns about the state of China’s property market, which have arisen despite state measures to boost home buying in many mainland cities. Global funds have named this sector as the most likely source of a global credit risk event, a recent BofA survey showed.
Chinese real estate stocks and bonds regain favor as global funds lament credit risk
Chinese real estate stocks and bonds regain favor as global funds lament credit risk
The fund has had a high level of liquidity over the past two years to preserve its capital, but is now “pretty fully invested,” Tsang added.
Asian credit from Indian and Indonesian issuers now presents attractive opportunities, she said. It also favors Macau’s gaming industry, “which is in a good position”, as its mass market revenues have returned to 90% of pre-Covid-19 levels and generated enough cash flow to help operators casinos to reduce their debt.
MGM China transforms Macau hotels into “vehicles of culture and art”: Pansy Ho
MGM China transforms Macau hotels into “vehicles of culture and art”: Pansy Ho
The Indian renewable energy sector is very attractive with stable and recurring cash flows for the next 20 years, Tsang said. Indonesia’s oil and gas sector could also generate good returns thanks to the commodities boom, she added. The fund’s top 10 holdings included Greenko Solar, India Green Energy and Medco Energi, according to its July fact sheet.
02:22
What does a rise in interest rates mean for Hong Kong homeowners?
What does a rise in interest rates mean for Hong Kong homeowners?
Elsewhere, bonds issued by Chinese technology companies and state-backed entities remain in high demand as the appetite for investment-grade Chinese credit is strong, she added. South Korean financial stocks are also attractive due to cheap valuations.
Investment-grade bonds could also perform as the U.S. Federal Reserve nears the end of its policy tightening, after raising its target for the federal funds rate from near zero in March 2022. Some economists predict the Fed will begin cutting its key rate from next year. year.
“If you look at history, Asian investment grade bonds really performed when the Fed finished raising rates,” Tsang said. Yields can reach 8 to 12 percent and investors should buy before the Fed rolls back some of the rate hikes since its March 2022 hike, she added.
China’s share of Asia’s dollar junk bond market is declining rapidly after three years of property crisis, prompting investors to seek returns outside the debt-plagued sector and the country, according to BEA Union Investment.
The land-based real estate market has yet to bottom out as Beijing’s policy measures have mainly focused on supporting demand in big cities, instead of addressing the lack of financing for developers, Pheona Tsang said , chief investment officer of fixed income at the Hong Kong-based fund manager. . Further defaults on property debts cannot be ruled out, she added.
“There are still many choices in the high-yield Asian market that we can diversify into,” Tsang said in an interview with the Post. “Macau gaming is one of our overweight sectors as it benefits from China’s reopening. We like [credit in] major countries, including India and Indonesia.
BEA Union is the Asia-focused joint venture of Bank of East Asia and Union Investment, a unit of Germany’s second-largest lender DZ Bank. The company managed $7.6 billion in assets as of March 31.
Once Asia’s largest such market, snowballing defaults since 2020 have shrunk the universe of Chinese junk bonds by 85 percent, according to an index compiled by Intercontinental Exchange and Bank of America (BofA). , as the pool of bonds issued by mainland Chinese developers has dried up. up.
China’s shadow banking crisis could threaten broader economy, analysts warn
China’s shadow banking crisis could threaten broader economy, analysts warn
The index currently has 48 bonds worth US$18.4 billion, including 32 real estate bonds valued at US$4.8 billion. As of February 2020, the index tracked 238 bonds worth around $126 billion, including 187 bonds worth $100 billion issued by Chinese developers.
03:11
Real estate problems in China: Evergrande files for bankruptcy protection in New York
Real estate problems in China: Evergrande files for bankruptcy protection in New York
Tsang manages the $182 million Asian Bond and Currency Fund, which had 43 Chinese real estate bonds in its portfolio as of Aug. 30, according to Bloomberg data. There were 105 in the first quarter of 2020, including those issued by Sunac China, Kaisa Group and CIFI Holdings, just before the Covid-19 pandemic and the country’s crippling “three red lines” policy came into force. Beijing industry.
Moody’s lowers outlook for China’s real estate sector, Fitch lowers GDP forecast
Moody’s lowers outlook for China’s real estate sector, Fitch lowers GDP forecast
“In the current environment, there could be more defaults among private developers,” Tsang said, given the new financial difficulties of Country Garden Holdings and Sino-Ocean, and recent fears of a possible blowout of the shadow banking sector in China.
His view echoes market concerns about the state of China’s property market, which have arisen despite state measures to boost home buying in many mainland cities. Global funds have named this sector as the most likely source of a global credit risk event, a recent BofA survey showed.
Chinese real estate stocks and bonds regain favor as global funds lament credit risk
Chinese real estate stocks and bonds regain favor as global funds lament credit risk
The fund has had a high level of liquidity over the past two years to preserve its capital, but is now “pretty fully invested,” Tsang added.
Asian credit from Indian and Indonesian issuers now presents attractive opportunities, she said. It also favors Macau’s gaming industry, “which is in a good position”, as its mass market revenues have returned to 90% of pre-Covid-19 levels and generated enough cash flow to help operators casinos to reduce their debt.
MGM China transforms Macau hotels into “vehicles of culture and art”: Pansy Ho
MGM China transforms Macau hotels into “vehicles of culture and art”: Pansy Ho
The Indian renewable energy sector is very attractive with stable and recurring cash flows for the next 20 years, Tsang said. Indonesia’s oil and gas sector could also generate good returns thanks to the commodities boom, she added. The fund’s top 10 holdings included Greenko Solar, India Green Energy and Medco Energi, according to its July fact sheet.
02:22
What does a rise in interest rates mean for Hong Kong homeowners?
What does a rise in interest rates mean for Hong Kong homeowners?
Elsewhere, bonds issued by Chinese technology companies and state-backed entities remain in high demand as the appetite for investment-grade Chinese credit is strong, she added. South Korean financial stocks are also attractive due to cheap valuations.
Investment-grade bonds could also perform as the U.S. Federal Reserve nears the end of its policy tightening, after raising its target for the federal funds rate from near zero in March 2022. Some economists predict the Fed will begin cutting its key rate from next year. year.
“If you look at history, Asian investment grade bonds really performed when the Fed finished raising rates,” Tsang said. Yields can reach 8 to 12 percent and investors should buy before the Fed rolls back some of the rate hikes since its March 2022 hike, she added.
