Chinese mortgage boycott is calling for more attention

Oksana Patron

16 September 2022

Although mortgage payment suspension of some “delayed delivery” project has spread across projects involving struggling developers, Premium Asia Funds Management has said its direct impact on major banks would be limited.

However, the fund manager stressed that the potential contagion effects and the impact to the property sales recovery trend should be monitored as the core issue lies in the misappropriation of presale funds within the escrow, which was underlined by the “murky financial condition” of some POE developers.

According to the fund manager, the environment for Asian Credit Market was extremely challenging, with the original hope for government to support but the recovery of property sales has not materialized.

Instead, renewed covid-lockdown, more defaults and most recently mortgage boycott put oil onto fire for the sector which spilled over into the broader high yield market, as weak investors’ sentiment, outflows resulted in a highly technical driven market.

At the same time, PAFM said that fundamentals of Asian corporates, excluding property, remained solid with earnings growth and some deleveraging making them even more attractive at the current valuations.

Following this, ‘survivors of the property crisis’ could potentially deliver substantial gains, both in terms of income and capital growth and investors actively positioning in these names might be expect to benefit.

With Asia’s most populous world countries, Asian retail growth rates had an approximately 250% greater growth rate than the US, underpinned by 2021 annual growth rate of retail sales in China alone at 14.2%, as according to PAFM, leading to a question “Is Asia on sale?”.

The fund manager said the market definitely priced in most, if not all, of the bad news on China, with green shoots starting to appear, despite near-term volatility and it expected Asian corporate credit to continue to offer the highest yield across all regions.