Top China Fund Manager Is Buying Developers’ Dollar Bonds Again

(Bloomberg) -- A top-performing Chinese fund manager is buying dollar bonds of the country’s developers after offloading them last year, betting that authorities will soon unleash further measures to support the sector.

Developer bonds yielding 10% to 20% offer value because investors turned overly pessimistic, according to Deng Sicong, a Beijing-based fund manager at China Asset Management Co. Deng’s fund is the top performer of the past year among the 25 Qualified Domestic Institutional Investor products that give China’s domestic investors access to offshore securities, according to data compiled by Bloomberg. 

He declined to give specifics on companies and the timing of his purchases, but is upbeat on the potential of loosened policy in areas like mortgage rates and homebuying regulations. “We kept cutting our exposure to Chinese developers since early last year, but we are now cautiously increasing positions in their dollar bonds,” said Deng. He expects more policy support given how local governments heavily rely on land sales to developers for their fiscal revenue.

The pivot by Deng comes as Chinese policy makers signal concern about the property sector’s liquidity crisis, after a record year of defaults sparked by a government crackdown on excessive borrowing by builders and housing market speculation. There is evidence that China is encouraging state-owned real estate companies to take market share from stressed rivals to limit contagion.

No Chinese builder’s dollar bonds were among the fund’s top five holdings as of Sept. 30, according to an October disclosure in which events at China Evergrande Group were described as a “quasi-systemic risk.” Then, developers’ debt fell sharply as worries about Evergrande’s debt-repayment abilities broadened and a number of firms defaulted. Crisis-hit Evergrande, which in December was officially labeled a defaulter for the first time, was among the top 2020 holdings in Deng’s fund. 

China Asset Management oversaw 587.6 billion yuan ($92.3 billion) of non-money-market mutual funds as of Sept. 30, about one-third of its assets under management, according to data from the Asset Management Association of China.

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With assistance from Bloomberg