SHANGHAI/HONG KONG: Dollar bonds sold by Chinese companies have rebounded sharply on bets by fund managers that a plunge in prices amid market chaos and a scramble for dollars was overdone as China’s economy begins to pick up and stimulus packages kick in.
An index tracking high-yield dollar bonds sold by Chinese companies has rallied 6.9% from three-and-a-half year lows reached last week following a 17% tumble.
Buying has been most obvious among Chinese property developers’ debt, where some bonds slumped to less than 60% of their face value, from trading above 80% in early March.
Bond investors expected to be paid back 100% of face value, so prices below that reflect repayment doubts.
“We have seen some good quality credit in property dropping 30, 40 points, to the kind of level in default territory - and we just don’t see that happening,“ said Sheldon Chan, Hong Kong-based associate portfolio manager at T Rowe Price, whose fund has been bargain-hunting.
Chinese borrowers have accounted for just over half of all dollar-denominated bonds sold by companies in the region over the past five years, according to data from Dealogic, and last year totalled 80% of all junk-rated, or high-yield, issuance.
“Because of the liquidity stress, quite a few quality names came onto the market at very low valuations ... They’re worth buying, and holding,“ said Shen Bowen, a Shanghai-based fund manager at Fullgoal Fund Management Co.
She said some quality Chinese developers, and state-owned companies (SOEs) were “slaughtered by mistake” amid the rush for the exits even though the coronavirus situation in China is improving.
The sell-off was especially severe among longer-dated notes. A bond sold by developer China Evergrande Group and maturing in 2025 fell to as low as 59% of face value this month, but has since recovered to 76%.
A bond issued by Country Garden Holdings maturing in 2025 bounced to 90% of face value after falling as low as 77% last week.
Underpinning the confidence are signs Beijing is stepping up stimulus to revive growth.
On Monday, China’s central bank unexpectedly cut a key money market rate by 20 basis points in the latest of a series of easing measures.
Cary Yeung, head of Greater China debt at Pictet Asset Management, said the major developers he monitors have re-opened 90% of sales centres, as policy support and revived demand kicked in.
“Valuation is good and so are the fundamentals,“ said Yeung. -Reuters
source https://www.thesundaily.my/business/savage-sell-off-in-chinese-dollar-bonds-lures-bargain-hunters-BX2198175
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