(Bloomberg) -- Asia’s largest high-yield bond funds are steering clear of China’s real estate sector as a worsening liquidity crisis weighs on the debt, according to research firm Morningstar Inc.
The average weighting of China property bonds in the Asian junk funds dropped to 16% in June from almost 28% at the end of last year, as a crackdown on borrowing and a plunge in housing sales continue to batter the industry.
The funds, from global asset managers BlackRock Inc., Fidelity International Ltd., HSBC Holdings Plc, Pacific Investment Management Co. and UBS Group AG, registered double-digit losses through the end of July, the report says. BlackRock’s high-yield fund cut its property exposure by almost half in June from December to about 15% of the portfolio. PIMCO reduced it to 12% from 22%.
Bloomberg reported earlier this year that the top institutional investors are reducing their positions in China’s high-yield dollar bonds after investor confidence got stung by a prolonged property crisis. Meanwhile, money managers are turning to high-yield securities from India and Southeast Asia as alternatives.
“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,” according to Patrick Ge, senior manager of research analysts at Morningstar.
The money managers have largely pulled the plug on China Evergrande Group, which was once the most actively traded high-yield bond in Asia before defaulting last year. Evergrande accounts for just 0.14% of BlackRock’s fund. PIMCO still holds four Evergrande bonds, accounting for 0.23% of the portfolio, according to Morningstar.