By Xie Yu
HONG KONG (Reuters) – Global investors including PineBridge and Pictet are bolstering their exposure to Chinese property developers, betting that a slew of support measure for the crisis-hit sector and the dismantling of COVID curbs are setting the stage for a recovery.
Beijing announced aggressive support measures late last year for the property sector, which accounts for about one-fourth of the world’s second-largest economy and has been hobbled by weakening demand and mounting debt defaults.
“The supportive measures announced since November reaffirmed our conviction,” said PineBridge’s Asia ex-Japan fixed income co-head Andy Suen, whose team manages $13.8 billion in mandates, with a significant portion tied to the China credit market.
The PineBridge Asian High Yield Total Return Bond Fund has raised its exposure to high-yield China property bonds to 17.8% by the end of 2022, up from 11.7% at the end of October. The fund has been adding allocation in the last two months to five developers and is now closely tracking some less strong names, he said.
Investors’ risk appetite in the high-yield bond market has been improving since China’s dismantling of its stringent zero-COVID policy last month and rolling out of support measures for the property sector.
An index tracking high-yield dollar bonds of Chinese developers has rallied as of Monday by 109.7% from its Nov. 3 low, although it is still 55% away from its peak in May 2021.
Cary Yeung, head of Greater China debt at Pictet Asset Management said demand is picking up to deploy cash in the Chinese property high-yield space as the reopening is set to have a positive impact on household income and hence property sales.
Pictet recently joined the first dollar bond offering by a Chinese property company since 2021.
Fidelity International’s Asian fixed income investment directing head Vanessa Chan said China property and Macau gaming had backed the fund’s performance, following China’s reopening and supportive measures targeting the property sector.
Fidelity would reinforce its investment strategy focusing on quality names from those two sectors, she said.
Kenny Chung, portfolio manager at credit hedge fund Astera Capital Partners has deployed millions of dollars buying stressed China property bonds, starting from November.
He is still keeping the majority of his positions, after logging high-single-digit returns, betting on further support from the policy side and growth recovery in the world’s second-largest economy.
“I foresee the property sales will eventually recover … these factors can provide better liquidity to the stressed developers and also incentive to do debt or bond restructuring,” he said.
Still, China’s property developers are set to grapple with a number of offshore bond maturities in 2023 and the support policies are for more healthy companies meaning some concerns remain in the sector.
(Reporting by Xie Yu; Editing by Sumeet Chatterjee and Christian Schmollinger)