China dollar bond market: risks and opportunities ahead as property sector defaults continue in 2022

Name: Chinese real estate giants Evergrande and Kaisa continue unloading assets to cover debt
Uploaded: 2021-12-29T00:30:25.000Z
Duration: 3 min 2 s
Description: Chinese real estate giants Evergrande and Kaisa continue unloading assets to cover debt

More Chinese dollar bond defaults to come next year, with cumulative default rate of high-yield bonds reaching 45 per cent from 38 per cent in 2021, Credit Suisse says

Policy uncertainty a key theme for investors next year, as property developers come under pressure from mounting maturities

Reading Time:3 minutes

Why you can trust SCMP

A China Evergrande Group construction site in Wuhan, China. ‘When it comes to the risk of individual names, you may have to manage your concentration level, as everyone in the market mostly relies on guessing which one will become the next Evergrande or Kaisa,’ says an analyst. Photo: Bloomberg

Iris Ouyang

Published: 8:30am, 29 Dec 2021Updated: 10:39am, 29 Dec 2021

China’s dollar bond market is expected to continue seeing defaults – especially in the stressed property sector. Diversification of investment portfolios amid policy uncertainty could be a safer bet, analysts and industry veterans said.

The cumulative default rate of China’s high-yield dollar bonds is expected to rise to 42 to 45 per cent in the coming three to six months in 2022, from 38 per cent in 2021, said Jack Siu, Credit Suisse’s Greater China chief investment officer.

The extended default risk in the world’s second largest bond market was expected to remain a key theme for investors to keep an eye on in the coming year. With its ripple effect to other asset classes, such as the equity market and China’s wider economy, its trends are seen as one of the biggest uncertainties in the investment space.

“We remain cautious in this environment. We are looking for signs of stabilisation in the property market,” said Siu, adding that his team preferred less risky industries and avoided Chinese property issuers. “The dollar bond market for China unfortunately right now – especially in the high-yield space – is still likely going to remain shut until we see signs that the stressed situation is coming to an end. But, so far we haven’t seen enough. ”

Investment banks and funds have widely highlighted the risk of policy uncertainty in their 2022 market outlook, and most of them also stressed lingering concerns about the liquidity situation of private property developers.

03:02

Chinese real estate giants Evergrande and Kaisa continue unloading assets to cover debt

In the past year, starting from China Evergrande Group’s liquidity crunch in September, defaults at developers have accelerated. Fantasia Holdings Group, China Properties Group and Modern Land have joined China Fortune Land Development and Sichuan Languang Development on the list.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x