High-Yield Selloff Has Largely Passed by Over-Leveraged China

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(Bloomberg) -- The slump in high-yield debt hasn’t pulled the plug on Chinese property bonds.

While last week saw more than $2 billion pulled from global exchange-traded funds tracking speculative-grade bonds, the country that was warned of over-leveraging by its own central bank and the International Monetary Fund has escaped relatively unscathed.

None of the high-yield China property bonds covered by Deutsche Bank AG has fallen even two basis points, analysts at the lender said in a note to investors dated Nov. 14. Default rates are still expected to be low, which means look for value among names that are held by U.S. investors but haven’t moved much so far.

“This high-yield selloff” will “eventually be a buying opportunity,” Singapore-based Deutsche Bank researchers led by Harsh Agarwal wrote. “Overall, China high-yield is doing comparatively better.”

The Bloomberg Barclays Global High Yield Total Return Index has dropped 1.1 percent from a record high on Oct. 19. In comparison, an index tracking Chinese high-yield debt is little changed over the same period.

©2017 Bloomberg L.P.

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