Some money managers are warming up to dollar-denominated bonds issued by Chinese property developers again, after a sell-off in March pushed corporate debt in Asia to the cheapest in about a decade. New home sales are recovering, while signs of domestic demand picking up from the depth of the coronavirus-led slump suggest a nascent upturn in the bond market this month has further room to go, according to Fidelity International, which oversees about US$480 billion of assets in Asia, Europe, Middle East and South America. UBS’s wealth management unit is favouring investment grade developers while AXA Investment Management sees value among shorter maturity notes from Chinese builders. “Nationwide sales are expected to fall this year, but (we expect) disparity between cities and developers with higher-tier cities and companies with stronger financial fundamentals likely to outperform,” Charlotte Chan, portfolio strategist of intermediary business for North East Asia, said in a note last week. China’s biggest developer Evergrande sees sales soar thanks to nationwide discounts as rivals battle for survival amid Covid-19 Like most financial assets, the more than US$1 trillion Asian corporate bond market sold off in March as the coronavirus pandemic worsened last month, sending credit spreads to the widest since the global financial crisis in 2008. Asian high yield or junk-rated notes currently offer about 950 basis points in additional yields above US Treasuries, while investment-grade notes offer about 260 basis points, still the fattest margins since the height of euro zone and US debt crisis in September 2011. Both spreads have narrowed this month from as high as 1,275 and 278 basis points in late March. China’s private housing market has sprung back to life, as transactions in at least eight large cities picked up in March, with volume surpassing the average levels in the final quarter of 2019, according to data from China Real Estate Information Corporation. That indicates the worst may be over for developers. Contracted sales plunged 34.7 per cent in the first two months of 2020 from a year earlier, driven by a 39.2 per cent drop in transaction volume, according to Moody’s Investors Service. Home prices in 70 cities tracked by the National Bureau of Statistics rose by 0.13 per cent in March from February, the government said on April 16. Sales of new flats and property investment also showed nascent recovery. China’s housing market springs back to life as sales in 30 major cities triple with coronavirus crisis abating The market still presents dangers, as a slump in corporate earnings and cash flow has triggered a rash of credit rating downgrades of Chinese dollar-based securities this year. The ratio of upgrades to downgrades stood at 0.11 in the first quarter at Moody’s, the worst in two years, according to data compiled by Bloomberg. At S&P Global Ratings, the ratio was 0.16, the weakest since the third quarter of 2018. Even so, UBS’s wealth management unit likes BBB-rated Chinese property bonds, as “the credit profile of these issuers should remain resilient amid earnings pressure,” it said in a report published last week. It did not specify any particular bond. “Fallen angel risk [of a downgrade from investment grade to high yield] is limited, in our view,” it said, adding “we expect most investment grade issuers to weather the current storm thanks to their access to onshore liquidity.” China, Singapore seen leading property market recovery after coronavirus pandemic eases, analysts say Short-dated China property bonds of financially sound issuers are better positioned from the worst impact of the coronavirus, said Jim Veneau, Asia head of fixed income at AXA Investment Managers. High yield issues maturing inside four to five years should perform better than longer dated ones because their performance is less vulnerable to spread widening, he added. “The social and economic impacts of the virus have created significant short term challenges for the sector,” Veneau said. “But the longer term secular trends in terms of urbanisation and income growth, which have been propelling the Chinese property sector, should provide support as the economy recovers.”