China property bonds lead tumble

Debt sold by Chinese builders perform badly in quarter with 4.1pc loss amid cash crisis

PUBLISHED : Tuesday, 25 June, 2013, 12:00am
UPDATED : Tuesday, 25 June, 2013, 4:45am

China's builders have been the world's worst-performing property bonds this quarter as Beijing allowed a record cash crunch to rebalance the economy away from property investment.

Dollar-denominated notes sold by Chinese developers have lost 4.1 per cent this quarter, the most since the three months to September 2011. That marks a reversal after the debt topped last year's rankings with a 22 per cent return.

Australian builders have lost 0.8 per cent since March 31, while Japan's shed 1.7 per cent.

China is seeking to tighten control on property lending and expand tax trials to more cities after a three-year campaign failed to dampen prices. Data released this month showed lopsided development in the country with manufacturing contracting and exports slowing while home prices jumped the most since December last year.

"We have some doubt on Chinese growth momentum and are worried about its credit leverage," said Kim Jin-ha, the head of global fixed-income at Mirae Asset Global Investments. "If policymakers want to keep leverage under control, the property sector could come under further pressure."

Losses deepened this month amid a cash crunch that sent benchmark interbank lending rates to the highest since at least May 2006.

Global investors pulled US$6.9 billion from emerging-market debt funds in the four weeks to June 19, according to EPFR Global. Bonds tumbled worldwide after Federal Reserve chairman Ben Bernanke said last week the central bank might end its bond purchase programme by the middle of next year.

"The sell-off in treasuries has led to a correction in the whole Asian credit market," said Leong Wai Hoong, who invests in high-yield debt in Singapore at Nikko Asset Management. "It has caused a revaluation of the whole asset class, and not just the Chinese property sector."

Yields on Chinese real estate bonds have jumped 98 basis points this quarter to 8.54 per cent, the highest since November 23 last year and up from a record low of 6.96 per cent on May 10, based on the weighted average rate of 80 straight bonds tracked by Deutsche Bank.