Bad reactions to Beijing crackdown make Chinese corporate bonds attractive for investors, Baring says
- Past episodes suggest negative market reactions are buying opportunities, according to Baring Asset Management
- Fund owned Chinese bonds including those issued by developers Kaisa Group and Xiamen Yuzhou Grand Future Retail in August
The money manager said the fallout in the bond market was significant, with credit spreads widening to a similar magnitude as they did in March 2020 when Covid-19 first broke out. The higher risk premium was more pronounced during midsummer, varying in degrees by sector.
“Looking back at similar crackdown episodes in the past, we note that the Chinese government did eventually ease restrictions to avoid stifling wider economic growth momentum,” Omotunde Lawal, head of emerging-market corporate debt, said in a report. “For most those past episodes, the market’s initial negative reaction created buying opportunities for long term investors.”
Her US$93 million EM Corporate Bond Fund has gained 3.2 per cent this year through July, beating its benchmark by twice, according to its July factsheet. The fund had 17.4 per cent of its assets invested in Chinese debt in August versus 16 per cent in July, making it the single-largest by geography. Notes issued by developers Kaisa Group and Xiamen Yuzhou Grand Future Real Estate were among its top 10 holdings.
Credit spreads or additional yields over risk-free rate, widened to more than 145 basis points on August 23 for the Chinese tech, media and telecoms sector, from less than 125 around early February. They rose above 740 basis points from less than 470 in May for Chinese property bonds.