Wealthy investors likely to shun high-yield bonds amid Evergrande debt crisis until second half of 2022, analysts say

Highly leveraged property developers – including China Evergrande, Kaisa and Fantasia – are facing severe liquidity crunch

High-net-worth customers have shifted to other investments such as yuan-denominated products and US stocks

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A pedestrian walks past apartment buildings at the City Plaza development of the highly indebted China Evergrande Group in Beijing. Photo: Bloomberg

Published: 9:30am, 20 Dec 2021

High-net-worth customers, who were among the biggest buyers of high-yield bonds issued by mainland Chinese property developers, have become some of the worst-hit investors amid the companies’ financial distress, leaving them reluctant to return to the market until the second half of 2022, according to analysts.

“Many high net worth customers in Hong Kong and the region liked to invest in high-yield bond products for their high returns,” said John Thang, head of financial markets for Hong Kong and Greater Bay Area at Standard Chartered. “They have suspended buying more high-yield bonds after the recent debt crisis.”

Highly leveraged property developers – such as China Evergrande Group, Kaisa Group and Fantasia Holdings Group – have faced liquidity crunch and missed interest payments on offshore debts in recent months as Beijing moved to prevent overleveraged developers from obtaining bank loans.

John Thang is the head of financial markets for Hong Kong and Greater Bay Area at Standard Chartered. Photo: Jonathan Wong

“Investors may need to wait until the second half of next year, when the market will be more settled down, before they would consider buying high-yield bonds of mainland property developers again,” Thang said.

High-net-worth investors have shifted to other products, such as yuan-denominated products, lower-risk mutual funds, and US stocks, according to Thang.

Long-term Chinese government bonds are currently trading at a premium of about 1.5 per cent compared to US Treasuries, while the yuan is expected to continue to appreciate against the US dollar and other major currencies next year, making yuan-related products particularly attractive, analysts said.

Thang is also positive about the medium- and long-term performances of Chinese stocks and bonds. “The mainland stock and bond market may suffer some short-term pain amid the regulatory crackdown. However, once the regulatory reforms are completed, they would lead to a healthier capital market development and strong economic growth in China,” he said.