Seven funds for sale in Hong Kong and six in Singapore have exposure to Country Garden’s securities that are due for coupon payments on 6 September, according to Morningstar research.
The embattled property developer is facing the prospect that it will likely have to default on the securities, adding further uncertainty to the country’s beleaguered property sector, which has been in a downward spiral ever since China Evergrade Group failed to meet its interest payments almost two years ago.
The seven Hong Kong-domiciled funds are:
| Fund | Size ($m) | Total Country Garen Exposure (%) | Total Coupon Exposure (%) | Market Value ($m) | Portfolio Date |
| Pimco GIS Asia High Yield Bond | 2,766.81 | 1.23 | 0.16 | 4.55 | 7/31/2023 |
| Goldman Sachs Asia High Yield Bond | 411.26 | 0.91 | 0.06 | 0.3 | 7/31/2023 |
| Haitong Asian High Yield Bond | 29.02 | 1.25 | 0.32 | 0.09 | 7/31/2023 |
| Manulife GF Sustainable Asia Bond | 97.3 | 0.31 | 0.04 | 0.04 | 7/31/2023 |
| Fidelity Asian High Yield | 1,766.46 | 1.68 | 0.19 | 3.52 | 6/30/2023 |
| Allianz Dynamic Asian High Yield | 567.22 | 2.95 | 0.33 | 2.23 | 6/30/2023 |
| Allianz Flexi Asia Bond | 134.33 | 0.23 | 0.14 | 0.21 | 6/30/2023 |
The six Singapore-domiciled funds are:
| Fund | Size ($m) | Total Country Garen Exposure (%) | Total Coupon Exposure (%) | Market Value ($m) | Portfolio Date |
| Manulife GF Sustainable Asia Bond | 97.3 | 0.31 | 0.04 | 0.04 | 7/31/2023 |
| Pimco GIS Asia High Yield Bond | 2,766.81 | 1.23 | 0.16 | 4.55 | 7/31/2023 |
| Goldman Sachs Asia High Yield Bond | 411.26 | 0.91 | 0.06 | 0.3 | 7/31/2023 |
| Allianz Flexi Asia Bond | 134.33 | 0.23 | 0.14 | 0.21 | 6/30/2023 |
| Fidelity Asian High Yield | 1,766.46 | 1.68 | 0.19 | 3.52 | 6/30/2023 |
| Allianz Dynamic Asian High Yield Bond | 567.22 | 2.95 | 0.33 | 2.23 | 6/30/2023 |
At $4.55m, the Pimco fund has the largest exposure overall to Country Garden in terms of market value. The fund has an exposure of 1.23% to Country Garden from eight issues altogether and owns both bonds whose coupons are due for payment on 6 September.
Meanwhile, the Allianz fund has the largest exposure to the bonds whose coupons are due next week at 0.33%, with the fund allocating 0.23% to one affected Country Garden issue.
Overall, Morningstar notes that the high yield sector has struggled this year with the JP Morgan Asia Credit Index Non-Investment Grade index down 2.5% so far this year, while the Asia High Yield Bond category is down 9%.
Regardless of this year’s performance, several funds have been drastically trimming their exposure to China’s property sector because of the headwinds it has faced in the last several years. The Pimco fund, for example, has reduced its exposure from 11.9% of the overall portfolio last year to 6.1% currently.
Similarly, the Fidelity fund has 21% of its net assets in China property last year, but this figure is now just 9.7%.
Morningstar notes that this reduction is due to several factors including fewer new bond issuances and drawdowns of existing bonds.
Morningstar notes that the size of the market has shrunk as the Asia high yield bond category had 32 funds with $8.7bn in assets under management at the end of June, which compared with $15bn before the Evergrande crisis first erupted two years ago.
Morningstar notes that a lot of high yield fund managers are seeking off-benchmark opportunities, particularly in investment grade as a result of the difficulties in the high yield sector.
