Chinese Property Bonds Rally as Investors See Revival Amid Government Stimulus

Chinese Property Bonds Gain Investor Confidence with Government Stimulus

Chinese and global institutional investors are revisiting Chinese property bonds, banking on an improved market outlook as the Chinese government accelerates measures to stimulate economic growth and revive the troubled property sector. The renewed interest is primarily due to the government’s latest aggressive stimulus policies, which aim to bolster a property sector struggling under a debt crisis.

Investors started reentering the market following the government's announcement of its most comprehensive stimulus package since the pandemic, focusing significantly on the real estate sector. This news sparked a rally in offshore bonds of Chinese property developers.

Beijing G Capital Makes a Move on Chinese Property Bonds

Credit investment firm Beijing G Capital Private Fund Management Center placed significant orders—worth “a few dozens of millions of yuan”—to purchase property bonds for the first time in several months, according to Li Gen, the company's chairman. “We saw determination to revive the property sector... which is a sea change from efforts of recent years,” Li stated.

This rally reflects a revival of confidence in the real estate market, although analysts remain divided on the likelihood of a short-term recovery.

Property Sector Sees Renewed Confidence

The property sector, a major component of the world’s second-largest economy, has experienced ongoing crises since 2021 after regulatory crackdowns on debt-laden construction activities deterred investors and lenders, limiting access to funds. This slowdown resulted in many developers defaulting on repayments, driving the value of U.S. dollar-denominated Chinese property bonds to historic lows.

Nevertheless, bonds of leading developers that have avoided default—such as China Vanke and Longfor Group—have witnessed significant gains. For instance, Vanke’s dollar bonds maturing in November 2027 surged to 70 cents against the dollar, up from 49 cents before the stimulus announcement, as per Duration Finance data. Similarly, Longfor’s dollar bonds due April 2027 rose from 75 cents to 84 cents within the same period.

Even offshore bonds from developers who defaulted have shown signs of recovery. Country Garden’s dollar bonds due in September climbed approximately 2 cents to trade at around 9.1 cents.

The stock prices of property companies have also rallied since the stimulus measures were unveiled.

'Positive Stance' on Market Prospects

Investor confidence was further bolstered when Chinese leaders committed to meeting the 2024 economic growth target of roughly 5%, emphasizing their goal to "stop the decline" in the housing market. Following the stimulus announcement, Guangzhou became the first top-tier city to lift all restrictions on home purchases. Additionally, Shanghai and Shenzhen announced a reduction in the minimum down payment ratio for first-time homebuyers, as well as measures to make property purchases by non-local buyers easier.

Enhanced Investment Products, a $400 million Hong Kong-based hedge fund, has increased its holdings of Vanke 2027 dollar bonds. Chief Investment Officer Jason Jiang noted that “while the stock rebound could be more significant, buying Vanke bonds provides a better safety margin.”

Future Outlook Hinges on Home Sales Data

The market’s direction may be further influenced by upcoming home sales data, which is set to be released after China’s week-long Golden Week holiday that ends on October 7. A Hong Kong-based credit fund manager, who preferred to remain anonymous, revealed that property bonds made up to 20% of their portfolio before the announcement, considering them oversold. However, the fund has been reducing its holdings due to uncertainties over whether new home sales would be sufficient to drive sector revival in the near term.

Gramercy Funds Bets on Sector Revival

Gramercy Funds Management, a distressed debt hedge fund based in Connecticut, U.S., maintains a portfolio of bonds from defaulted developers, wagering on a turnaround in the Chinese property bonds market. Deputy CIO Philip Meier expressed optimism, stating, "The latest actions by the Chinese authorities underpin our positive stance and substantially de-risk the case for owning these bonds."