Goldman ventures where others fear to tread, snapping up Chinese developers’ high-yield bonds, side stepping contagion risk
- Goldman Sachs Asset Management has added a ‘modest amount of risk’ through dollar-denominated high-yield bonds by China property developers
- Goldman also added yuan-denominated Chinese sovereign bonds to its investments in what it described as a ‘risk-off’ trade
“Ultimately the property sector has been the key driver of Chinese growth over the past two decades,” he said. “It’s unlikely the government will tolerate the impact on growth that would come about if it were to allow such a large number of developers to fail. The breadth of distress that the market is now pricing, it’s starting to look significantly out of alignment with the true extent of distress.”
At the end of October, economists surveyed by Bloomberg expected gross domestic product in the fourth quarter to reach 3.5 per cent, almost a percentage point less than the forecast a month before. Bloomberg Economics says the central bank may cut banks’ required reserve ratios by another 50 basis points in the coming months, as the need for monetary policy easing climbs.
“We effectively see a requirement for policymakers and central banks to continue keeping liquidity conditions ample, particularly given the deteriorating growth backdrop and the demand for liquidity from the corporate sector,” Bell said. “Think of these as Chinese rates, where we’re being long or overweight on the view that the central bank keeps yields where they are, or if not, pushes them lower.”