Goldman Sachs: Defaults on Chinese high-yield property bonds to remain elevated in 2024 amid weak property sales
- The default rate will reach 35 per cent in 2024 after hitting 42.2 per cent in the first nine months of 2023, the investment bank predicts
- In Asia’s high-yield bond space, Goldman prefers credit issued by Macau gaming companies and commodities companies
The default rate for Chinese high-yield property dollar bonds will remain elevated next year as property sales continue their slide, putting more strain on already stressed liquidity conditions, according to Goldman Sachs.
“Our China property team expects difficult market conditions to continue,” the US investment bank said. Primary property sales will decline by 5 per cent year on year in 2024 as increasing supply in the secondary market adds to pricing pressure, which could create a negative feedback loop on price and volume in the primary market.
“Liquidity pressures will remain challenging for China property [high-yield] developers, and defaults will continue,” they said.
China’s dollar-denominated high-yield bonds, dominated by property-sector issuers, have handed investors a 23.2 per cent loss so far this year, after a 33 per cent slump in each of the past two years, according to the ICE Bank of America Index.
The index tracks 35 bonds with a market value of US$16.8 billion. They yielded 16 per cent or 1,156 basis points above Treasuries as of November 17.
“Asia’s high-yield market has become smaller, though risks are now more diversified,” Goldman’s note said. “We believe a sectoral approach makes sense.”