Even as investors stay away from the Chinese real estate debts, Goldman Sachs Asset Management is buying out the most distressed asset.
According to Bloomberg news, the company has added modest quantities of high-yield Chinese bonds denominated in U.S. dollars and issued by Chinese real estate developers to the distressed assets portfolios. According to Angus Bell, a Goldman’s portfolio team member said in an interview on Friday that the market overestimated the systemic risk due to Chinese Evergrande, the most indebted developer potential default spreading to other real estate sectors. He feels that the sharp sale of Chinese debt is creating opportunities.
“The real estate sector has been the key driver in the past two decades of Chines growth story, and the Chinese Government will not allow the impact on growth if a large number of developers fail. The true extent of distress is looking out of alignment with the current distressed market prices one is witnessing, “said Bell.
A Bloomberg index of Chinese dollar bonds classified as junk-rated has gone down by 22 % since September, even as yields have gone up with the Government tightening the real estate sector. Though the Evergrande crises deepened, senior officials are of the view that real estate markets are controllable and restrictions on home loans by banks are being eased.
With assurance from the People’s Bank of China providing liquidity in the local markets in a slow economy, Goldman increased its distressed assets portfolio by adding a Chinese Government local currency bond describing the move as to risk off-trade.
Towards the end of October, Bloomberg surveyed economists who expect gross GDP to touch 3.5% in the fourth quarter, 1 % less than forecasts in the earlier month. Bloomberg Economics said that the central bank might cut the required reserve ratio by another 50 basis points in the coming months to ease monetary policy.
According to Bell, there is a requirement for central banks and policymakers to keep substantial liquidity in the market, given the deteriorating growth and demand of liquidity from the corporate sector. Bell said, “Liquidity has to be thought as Chinese rates where one is either overweight or long on the anticipation that central banks will keep the yield same or make to lower. “
