Why investors running away from Chinese real estate are investing money in India

Goldman Sachs Group Inc. has recently taken a positive stance on high-yield bonds in Asia. Data from Bank of New York Mellon Corp indicated that South Korea, Indonesia, Singapore, India, Malaysia and Japan all recorded capital inflows into corporate debt in the three months to January 18, while China experienced outflows.

Rising inflation means there are still losses for broader Asian bonds – as has been the case in many parts of credit markets globally – but they have been much softer. Dollar notes of all ratings from Chinese issuers have fallen by about 3.7% in 2022, sparked by policy support even after a rally for property developer securities in recent days.

According to the Bloomberg index, it is just 1.5% for Indian borrowers, 0.8% for South Korean firms and 0.7% for Philippine credit.

Wai Mei Leong, a portfolio manager at Eastspring Investments, said, “Investors hide Indian investment-grade and high-yield credits and other parts of Asia outside China as a means of reducing their exposure to Chinese assets. ”

President Eduardo Francisco said last week that a recent example of a money manager cutting Chinese bonds is BDO Capital and Investment Corp., which sold its holdings of such securities.

Both Goldman and CreditSights consider Indian companies attractive. The US bank recommends high-yield renewable energy, while the latter considers financial firms best shielded from crises in the world’s second-largest economy.

Still, there are plenty of risks to the broader Asian debt market. Due to investor demand to diversify, CreditSights said valuations for Asian loans outside China have already hardened. This means that many South and Southeast Asian names guarantee only market performance ratings despite good fundamentals.

For the past year and the first few weeks of 2022, Chinese asset dollar bonds have rallied in recent sessions thanks to a string of policy moves to ease restrictions on the real estate industry and broad monetary stimulus. But the outlook is highly uncertain, with more defaults expected, according to Goldman.

If the failures do not spiral out of control, this could keep interest in other parts of the Asian market, but any prolonged crisis will lead to an economic slowdown, which will have ramifications across Asia. Chinese debt constitutes an outlier in sectoral indices. Investors can decide to exit outright.

Facing redemption requests, bond fund managers have to “sell a little bit of everything,” said Jean-Louis Nakamura, Lombard Odier’s chief investment officer in Asia Pacific. “I fear that this kind of indirect weakening of the Asia credit market will continue for some time.”

But for now Asian credits outside China are offering less volatility and some country-specific changes have encouraged investors.

When it comes to tapping global financial markets, India lags behind economies like Brazil and South Africa, not least because the country’s central bank has historically been wary of hot money flows. Yet the past few weeks have seen an increase in dollar-denominated issuance, with Reliance Industries raising $4 billion in India’s largest foreign currency bond deal earlier this year.

Green- and sustainability-bond sales have also increased, bringing it in line with trends elsewhere.

Paula Chan, a senior portfolio manager at Manulife Investment Management (Hong Kong), said, “We love India’s location because those companies are supplying a lot of ESG bonds and they are not that expensive compared to other Asian peers. ” Ltd. “Supply from there also provides pretty good diversification.”

This story has been published without modification in text from a wire agency feed. Only the title has been changed.