Savage sell-off in Chinese dollar bonds lures bargain hunters

[SHANGHAI] Dollar bonds sold by Chinese companies have rebounded sharply on bets by fund managers that a plunge in prices amid market chaos and a scramble for dollars was overdone as China's economy begins to pick up and stimulus packages kick in.

An index tracking high-yield dollar bonds sold by Chinese companies has rallied 6.9 per cent from three-and-a-half-year lows reached last week following a 17 per cent tumble.

Buying has been most obvious among Chinese property developers' debt, where some bonds slumped to less than 60 per cent of their face value, from trading above 80 per cent in early March.

Bond investors expected to be paid back 100 per cent of face value, so prices below that reflect repayment doubts.

"We have seen some good quality credit in property dropping 30, 40 points, to the kind of level in default territory - and we just don't see that happening," said Sheldon Chan, Hong Kong-based associate portfolio manager at T Rowe Price, whose fund has been bargain-hunting.

Chinese borrowers have accounted for just over half of all dollar-denominated bonds sold by companies in the region over the past five years, according to data from Dealogic, and last year totalled 80 per cent of all junk-rated, or high-yield, issuance.

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"Because of the liquidity stress, quite a few quality names came onto the market at very low valuations ... They're worth buying, and holding," said Shen Bowen, a Shanghai-based fund manager at Fullgoal Fund Management Co.

She said some quality Chinese developers, and state-owned companies (SOEs) were "slaughtered by mistake" amid the rush for the exits even though the coronavirus situation in China is improving.

The sell-off was especially severe among longer-dated notes. A bond sold by developer China Evergrande Group and maturing in 2025 fell to as low as 59 per cent of face value this month, but has since recovered to 76 per cent.

A bond issued by Country Garden Holdings maturing in 2025 bounced to 90 per cent of face value after falling as low as 77 per cent last week.

Underpinning the confidence are signs Beijing is stepping up stimulus to revive growth.

On Monday, China's central bank unexpectedly cut a key money market rate by 20 basis points in the latest of a series of easing measures.

Cary Yeung, head of Greater China debt at Pictet Asset Management, said the major developers he monitors have re-opened 90 per cent of sales centres, as policy support and revived demand kicked in.

"Valuation is good and so are the fundamentals," said Mr Yeung.

REUTERS