BlackRock and several other of Asia’s largest high-yield bond funds have limited their exposure to China’s real estate sector as the country’s liquidity crisis continues to worsen.
According to a report by research firm Morningstar Inc, BlackRock is not the only fund that has suffered as a result, with Fidelity International Ltd., HSBC Holdings Plc, Pacific Investment Management Co., and UBS Group AG all registering double-digit losses at the end of July as well.
Following the reduction in borrowing as well as the plummeting housing sales that continue to plague the real estate sector, the average weighting of Chinese property bonds in junk funds was reduced from almost 28% at the end of 2021 to 16% in June. BlackRock’s high-yield fund made the largest cut, from approximately 30% of its portfolio in December 2021 to around 15% in June. PIMCO followed closely behind, cutting its property bond weighting from 22% to 12% during the same period.
While the current outlook may look bleak, there is a chance of a turnaround occurring in the next few months, Patrick Ge, senior manager of research analysts at Morningstar, reminded. “Fund managers are waiting for China’s National Party Congress in November 2022 for better clarity on the administration’s policy direction, including their stance on real estate,” Ge stated.