Tue. Sep 26th, 2023
    China’s Real Estate Sector Poses Greatest Risk of Global Credit Event, Says Bank of America Survey

    According to Bank of America’s September fund manager survey, China’s real estate sector is considered the most likely source of a global systemic credit event. The survey, which included 222 fund managers overseeing $616 billion in assets, revealed that one-third of respondents identified Chinese real estate as the biggest credit event risk, surpassing U.S. and EU commercial real estate, which stood at 32%.

    China, the world’s second-largest economy, has been facing challenges throughout the year due to weakened domestic and international demand, as well as a deepening property crisis. This has put significant pressure on Beijing to introduce various support measures to stimulate growth.

    The recent turmoil in China’s property sector has centered on Country Garden, the largest private developer in the country. Sources familiar with the matter revealed that the company obtained approval from creditors to extend repayments on six onshore bonds. This highlights the ongoing struggles within the Chinese real estate market.

    However, the survey results indicate that investor sentiment regarding the global economy, excluding China, is improving. Approximately three-quarters of respondents expressed optimism about a soft landing or no slowdown at all for the global economy. This positive outlook has led to a record increase in allocations to U.S. equities, with investors shifting away from emerging market equities. Notably, overweight positions in U.S. equities have reached their highest level since August 2022.

    On the other hand, growth expectations for China have deteriorated significantly. The percentage of respondents anticipating a stronger Chinese economy in the next 12 months plummeted to 0%, down from 78% in the February poll. This decline reflects the impact of strict anti-COVID lockdown measures implemented last year. In contrast, investors remain bullish on Japan, with overweight positions in Japanese equities reaching their highest level since December 2018.

    Overall, the survey results reinforce concerns about China’s real estate sector and its potential implications on the global economy. While there are signs of improvement outside of China, the risks associated with the Chinese property market warrant continued attention and monitoring.

    – Bank of America September fund manager survey
    – Reuters report on Country Garden’s bond repayments approval