China property sector could see “significant” policy easing

New York, Jan. 24 (BNA) Asset management bank BNP Paribas said that China’s real estate sector is likely to see a “significant easing” of its policies, after months of starting to build a long position in the sector’s debt.

“We see that we are at a major inflection point in terms of policy and are likely to see some significant easing,” said Jean Charles Sambour, head of fixed income for emerging markets at BNP Paribas Asset Management (BNPPAM) in London. , Reuters reported.

“We are involved in the sector and we are positive in the sector. We have built this position over the past two months.”

Sambor could only discuss the public sector, not the company’s own investments.

The assets of China’s real estate sector came under heavy pressure last year after stricter financing rules for real estate development put in place in 2020 faced a mountain of debt, effectively engineering deflation. The huge importance of Chinese real estate in the global economy has shaken many portfolio managers.

The CSI China Mainland Real Estate Index fell as much as 28% last year before closing down 15%, with shares in China Evergrande, one of the biggest developers in the midst of restructuring, down 89% in 2021.

Evergrande holds about $300 billion in commitments, including about $20 billion in international bonds. Foreign bonds, which traded above 90 cents in some cases last year, are now at default levels of less than 20 cents on the dollar.

“The real estate market was under pressure because (the government) wanted to deleverage and to some extent they did,” Sambur said. “China now wants to make sure that the rest of the sector is not in danger.”

Some international investors expect SOEs (state-owned enterprises) to help facilitate debt restructuring, but others worry that it could open the door for Beijing to use the limited proceeds to pay off its domestic debt first.

Sambur said that the sector restructuring cannot be led by the state because the participation of the private sector in the real estate market is too large.

“State-owned companies are an important part of the market but they don’t dominate it, so it’s difficult for them to engineer a state-owned-led restructuring. It needs strong private sector participation,” he said.

Sampur said BNPPAM’s view of the real estate sector is part of a broader bet on fixed income returns in emerging markets.

“We think it will be the year of great normalization in high-yield Asia, with a focus on China,” Sampur said. “High yields in Asia, and more specifically China, will be a key driver of fixed income performance in emerging markets in 2022.”

MI