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Which funds are exposed to Chinese property?

Morningstar data shows that 15 funds available for distribution in Hong Kong and Singapore were exposed to China’s troubled property sector at the start of the year.
Air pollution from smog shrouding over the city of Shanghai, China.

15 funds for sale in Singapore and Hong Kong were invested in China’s struggling real estate sector bonds at the start of the year, before Evergrande was ordered to file for bankruptcy by Hong Kong Courts last week.

This is according to Morningstar data, which showed that several Chinese fixed income and multi asset funds have portfolio exposure to the troubled property sector.

The data revealed that 15 open-ended strategies were invested in Chinese real estate bonds at the start of 2024.

NameMorningstar CategoryFixed-Inc Secondary Sector Corporate Real Estate (%)
HSBC All China Bond AC RMBEAA Fund China Bond8.39
Schroder RMB Fixed Income USD C AccEAA Fund China Bond7.80
Haitong Global RMB Fixed Income A CNYEAA Fund China Bond6.82
ICBC Asset Management RMB Fixed Inc FdEAA Fund China Bond6.33
Allianz China Multi Income Plus AT USDEAA Fund Greater China Allocation3.57
HSBC China Multi-Asset Income AM USDEAA Fund Greater China Allocation2.82
Allianz China Strategic Bond A USDEAA Fund Greater China High Yield Bond2.21
Fidelity China High Yield A-Acc-USDEAA Fund Greater China High Yield Bond2.19
Ping An Of China SIF – RMB Bd A RMBEAA Fund China Bond1.95
BGF China Bond D3 USDEAA Fund China Bond1.60
Fidelity China RMB Bond A-Acc-RMBEAA Fund China Bond1.47
UBS (Lux) KSS CHN Allc Opp $ HKD P-6%EAA Fund Greater China Allocation1.25
Schroder China Asset Inc USD A AccEAA Fund Greater China Allocation1.13
JPM China Bond Opportunities A(acc) USDEAA Fund China Bond0.70
AB RMB Income Plus S1 USDEAA Fund China Bond0.45
Source: Morningstar

The fund with the largest exposure to corporate real estate bonds in China was the HSBC All China Bond fund, with 8.39% invested – although most of the portfolio (almost 60%) is invested in the banking sector.

There are fears that China’s banks may come under pressure from its property related loans amidst the sector’s downturn which has been a drag on the broader Chinese economy.

But most of the bad news has already been priced-in the sector, so the Evergrande bankruptcy will have a limited rippling effect on banking and Asian high-yield funds, according to Arvind Subramanian, senior analyst of manager research at Morningstar.

He said: “The recent liquidation order of Evergrande is unlikely to have a knock-on effect on the Chinese property sector bond holdings for Asian bond and Asian high-yield funds.

“This is because the current bond prices of most Chinese property firms already reflect the sector’s challenged outlook, which has been impacted by macroeconomic headwinds, slumping property sales, and issuer-specific credit events.”

However existing overseas creditors to Evergrande group are hoping the court order will allow them to recover part of their losses through liquidation of what was once the country’s largest property developer.

“Notably, this event highlights the perils of investing in distressed debt,” Subramanian said. “Investors need to be cautious about the often lengthy and uncertain debt-resolution process that accompanies a bond default.”

He explained: “Portfolio managers who seek to capitalize on the recovery value of distressed securities must usually commit dedicated resources with a specific skill set, as the resolution of bond defaults involves activities like participating in a creditor consortium and engaging in complex negotiations with the issuer, which requires substantial analytical and legal resources.”

Given the turmoil the sector has seen over the past few years, it is no surprise then that the weighting of Chinese property within Asia high-yield bond funds has been declining.

The universe has been evolving to include more markets such as Macau, Hong Kong, India and the Philippines, according to Subramanian.

Part of the Mark Allen Group.