PineBridge and Pictet increase exposure to China real estate on hopes of a recovery

HONG KONG, Jan. 18 (Reuters) – Global investors including PineBridge and Pictet are ramping up their exposure to Chinese real estate developers, betting that a slew of support measures for the crisis-hit sector and the dismantling of COVID curbs will pave the way for a recovery .

Beijing late last year announced aggressive stimulus measures for the real estate sector, which accounts for about a quarter of the world’s second-largest economy and has been hampered by weaker demand and rising defaults. [nL4N33912W]

“The supportive measures announced since November have reaffirmed our belief,” said Andy Suen, co-head of PineBridge’s Asia ex-Japan fixed income, whose team manages $13.8 billion in mandates, a significant portion of which linked to the Chinese credit market.

The PineBridge Asian High Yield Total Return Bond Fund has increased its exposure to high yield Chinese real estate bonds to 17.8% by the end of 2022, from 11.7% at the end of October. The fund has added allocation to five developers in the past two months and is now closely following some less strong names, he said.

Investors’ risk appetite in the high yield bond market has improved since China last month lifted its strict zero-COVID policy and rolled out support measures for the real estate sector.

An index that tracks high-yield Chinese developer dollar bonds (.IBXXAX13) is up 109.7% as of Monday from its Nov. 3 low, though it is still 55% away from its May 2021 high.

Cary Yeung, head of Greater China Debt at Pictet Asset Management, said demand is picking up to deploy cash in China’s high-yield real estate sector as the reopening will have a positive impact on household income and therefore sales of real estate.

Pictet recently joined the first dollar-denominated bond offering by a Chinese real estate company since 2021. read more

Vanessa Chan, head of Fidelity International’s Asian fixed income investments, said China’s real estate and Macau gaming had supported the fund’s performance following China’s reopening and supportive measures aimed at the real estate sector.

Fidelity would strengthen its investment strategy, focusing on quality names from those two sectors, she said.

Kenny Chung, portfolio manager at credit hedge fund Astera Capital Partners has deployed millions of dollars since November to buy pressured Chinese real estate bonds.

He still holds the majority of his holdings, having posted high-single-digit returns, betting on further policy support and growth recovery in the world’s second-largest economy.

“I foresee real estate sales eventually recovering… these factors can provide more liquidity to stressed developers and also provide incentives to restructure debt or bonds,” he said.

Still, in 2023, China’s real estate developers will face some offshore bond maturities and support policies targeting healthier companies, meaning some concerns remain in the sector. read more

Reporting by Xie Yu; Edited by Sumeet Chatterjee and Christian Schmollinger

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