Chinese stimulus draws investors back to offshore bonds in troubled real estate sector By Reuters

By Xie Yu and Summer Zhen

HONG KONG (Reuters) – Some Chinese and global institutional investors are re-examining Chinese housing bonds, betting on an improving outlook as the government steps up efforts to boost economic growth and revive a property sector reeling from a debt crisis.

Investors began to return after the announcement on Tuesday of the most aggressive stimulus measures since the pandemic, mainly targeting the real estate sector and triggering a rise in offshore bonds of real estate developers.

Credit investment specialist Beijing G Capital Private Fund Management Center has placed orders worth “several tens of millions of yuan” to buy real estate bonds for the first time in months, its chairman Li Gen said.

“We have seen the determination to revive the real estate sector … which is a big change” from efforts in recent years, Li said.

The rally underscores the extent to which the stimulus is restoring confidence in the sector, although analysts are divided on the prospects for a near-term recovery.

The sector, a mainstay of the world’s second-largest economy, has bounced from one crisis to another since 2021 after a regulatory crackdown on debt-fueled construction spooked investors and lenders alike, limiting access to funds.

Sales have slowed and many developers have defaulted, pushing the value of developer bonds in US dollars to historic lows.

Bonds of top developers that did not default – including China Vanke and Longfor Group – were among the rally’s biggest winners.

Vanke dollar bonds due November 2027 rose as much as 70 cents to the dollar on Thursday, from 49 cents before Tuesday’s announcement, Duration Finance data showed.

Longfor dollar bonds due April 2027 rose to 84 cents from 75 cents in the same timeframe, the data showed.

Offshore bonds from defaulted developers also rose, with Country Garden’s dollar bonds maturing in September adding about 2 cents to trade at about 9.1 cents.

Real estate stock prices have also risen since the announcement.

“POSITIVE”

Investor sentiment received a fresh boost two days after the stimulus announcement, when Chinese leaders pledged to hit the target of economic growth of around 5 percent for 2024 and “stop the decline” in the housing market.

On Sunday, Guangzhou became the first leading city to lift all restrictions on home purchases, while Shanghai and Shenzhen said they would lower the minimum down payment rate for first-time home buyers and make it easier for non-local buyers to buy .

Enhanced Investment Products, a $400 million Hong Kong-based hedge fund, increased its holdings of Vanke 2027 dollar bonds, chief investment officer Jason Jiang said.

“While the stock return could be more significant, buying Vanke bonds offers a better margin of safety,” Jiang said.

A trigger for the market’s future direction could be home sales data, due out after China’s Golden Week week ending Oct. 7, Jiang said.

Another credit fund manager in Hong Kong said property bonds made up as much as 20 percent of their portfolio stockpiled ahead of the announcement believing they were oversold.

It has since been cashed in on uncertainty over whether the measures could lift new home sales enough to revive the sector in the short term, the manager said, declining to be identified because they were not authorized to speak to the media .

Distressed debt hedge fund Gramercy Funds Management, based in Greenwich, Connecticut, US, holds a portfolio of bonds from defaulted developers, betting on a revival in the sector. The rally has boosted yields, and improving macro and sector fundamentals will boost them further, Deputy CIO Philip Meier said.

“The latest actions by the Chinese authorities support our positive position and substantially reduce the case for holding these bonds,” Meier said.