Chinese real estate debt crisis : Due to the Chinese real estate debt crisis, investors are turning to the Asian credit market to distance themselves from China and look at India as an opportunity. India is currently left out of historical turmoil. Goldman Sachs Group Inc recently turned positive on Asia High-Yield Bonds. Bank of New York Mellon Corp data indicates that South Korea, Indonesia, Singapore, India, Malaysia and Japan all saw record capital inflows into corporate debt during the three months to January 18.
loss due to inflation
Rising inflation means that broader Asian bonds are still losing money, as has been the case in many parts of the global credit market, but have been modest. Dollar notes across all ratings of Chinese issuers have lost around 3.7 per cent in 2022, despite a rally for property developer securities in recent days due to policy support.
In comparison, it has been 1.5 per cent for Indian borrowers, 0.8 per cent for South Korean companies and 0.7 per cent for Philippine credits, according to the Bloomberg index.
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Investing in other parts of Asia including India
“Investors are investing outside China with Indian investment grade and high-yield credit, and in other parts of Asia, to mitigate risk in Chinese properties,” said Y Mei Leong, portfolio manager, Eastspring Investments.
There is an example of a money manager who has taken exposure to Chinese bonds and sold holdings in such securities. He is Eduardo Francisco, the President of BD Capital and Investment Corp.
Indian companies are looking attractive
Both Goldman and CreditSights find Indian companies attractive. US Bank recommends High Yield Renewables, while CreditSights considers financial companies the best during times of trouble in the world’s second largest economy.
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As of now the broader Asian credit market carries significant risks. Credit sites said valuations for Asian credit outside China have already hardened on expectations of diversification from investors. This means that many South and Southeast Asian countries, despite good fundamentals, only guarantee market performance ratings.
Prolonged crisis will lead to economic slowdown
China’s property dollar bonds showed a strong rally in recent sessions on the back of several policy steps to ease restrictions on the real estate industry and broader monetary stimulus. But according to Goldman, the outlook is very uncertain due to high defaults forecast.
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If failures are not controlled, interest could arise in other parts of the Asian market, but a prolonged crisis could lead to an economic slowdown, which could affect the whole of Asia. Chinese debt has a major share in the regional index. Investors can take a decision on exit completely.
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