Chinese real estate is now seen as the number one source for the next global credit event among investors surveyed by Bank of America Corp., even as President Xi Jinping’s government rolls out stimulus measures to stabilize the world’s second-largest economy’s ailing property sector.
(Bloomberg) — Chinese real estate is now seen as the number one source for the next global credit event among investors surveyed by Bank of America Corp., even as President Xi Jinping’s government rolls out stimulus measures to stabilize the world’s second-largest economy’s ailing property sector.
The ratio of investors concerned about China’s housing sector more than doubled to 33% in September from 15% last month, according to the latest BofA global survey of fund managers, which included 222 participants with $616 billion in assets under management. US or EU commercial real estate, which was seen as the top credit risk in the August poll, moved down to the second spot.
At the same time, 8% of those polled named a potential Chinese real estate “bust” as the biggest tail risk, following central banks kept hawkish by high inflation, worsened geopolitics, systemic credit event, a credit crunch, global recession and an artificial-intelligence-fueled bubble in tech.
The survey came as distressed Chinese property developers struggle to negotiate with creditors to extend repayments. Country Garden Holdings Co., once the country’s largest builders, had been asking to stretch out principal payments just days after it dodged a default on dollar securities at the last minute. The deadline for votes on two of eight securities it had sought to extend was pushed back until later Tuesday, people familiar with the matter told Bloomberg News.
Meanwhile, a spurt of home sales in the biggest cities seems to be losing momentum less than two weeks after authorities loosened mortgage restrictions, raising doubts over whether the steps are enough to revive the market before a crucial busy season.
Nearly 60% of participants in the survey believed further support from China over the next 6 months will be limited to policy fine-tuning, while only 12% expected a so-called fiscal “bazooka” and merely 4% anticipated some big monetary stimulus. Fifteen percent of the investors saw no meaningful measures at all.
Overall, the “avoid China” theme has become one of the biggest convictions among the surveyed investors, wrote BofA strategists led by Michael Hartnett. A net zero percent of them now expected stronger economic growth for China in the next 12 months, a dramatic reversal from 78% in February this year. The pessimism was even worse than what was observed in the same month last year, when China was still suffering stringent Covid-19 lockdowns.
Short selling of Chinese stocks also gained momentum. “Short China equities” was picked as the most-crowded trade by 21% of those in the Bank of America survey. That marked a jump from August’s 14% and was in stark contrast with what fund managers around the world saw earlier this year.
The poll was conducted from Sept. 1 to Sept. 7 and other findings included a rush toward the high-flying US equities and an exodus from emerging markets.
–With assistance from Michael Msika.
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