China’s recent stimulus measures have sparked renewed interest from both Chinese and global investors in the country’s beleaguered property sector, particularly in offshore bonds. These efforts, aimed at stabilizing the economy and reviving the real estate market, have led to significant rallies in bonds that were previously distressed.
The aggressive stimulus package, announced on October 1, 2024, represents the most comprehensive effort by the Chinese government to support the property sector since the COVID-19 pandemic. This development has attracted substantial investment, including from Beijing G Capital Private Fund Management, which placed its first orders for property bonds in several months. According to Li Gen, chairman of the fund, the government’s determination to revive the property market marks a “sea change” in policy.
While some analysts remain cautious, the rally has boosted the confidence of many investors. The sector, a cornerstone of the world’s second-largest economy, has been plagued by a series of crises since 2021, when a regulatory crackdown on debt-fueled construction severely impacted access to financing. This led to numerous defaults and drove bond values to record lows.
Despite these challenges, bonds from developers that did not default, such as China Vanke and Longfor Group, have experienced the largest gains. Vanke’s US dollar bonds maturing in November 2027 surged from 49 US cents to 70 US cents, while Longfor’s bonds due in April 2027 jumped from 75 US cents to 84 US cents. Even the bonds of defaulted developers, like Country Garden, saw an uptick, with their US dollar bonds rising by two cents to 9.1 US cents.
Investor optimism was further bolstered when China’s leadership reaffirmed its commitment to achieving a 5% economic growth target and halting the housing market decline. Cities like Guangzhou have removed home purchase restrictions, while Shanghai and Shenzhen have eased down payment requirements, fueling hopes of a market rebound.
However, the true impact of these measures remains uncertain, with investors closely watching home sales data following China’s Golden Week holiday. While some funds are cashing out due to lingering doubts about the sector’s short-term recovery, others, like Gramercy Funds Management, remain optimistic. Deputy CIO Philip Meier noted that the latest government actions have significantly reduced risks for investors in property bonds.
As China continues its efforts to stabilize its property market, investor sentiment may continue to improve, but the long-term outlook is still uncertain.
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