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 Important information
 JPMorgan Asian Total Return Bond Fund
  1. The Fund invests primarily (at least 70%) in Asian bonds and other debt securities. The Fund will have limited RMB denominated underlying investments.
  2. The Fund is exposed to risks related to debt securities (including interest rate risk, below investment grade/ unrated investment risk, investment grade bond risk, sovereign debt risk, valuation risk, credit risk and credit rating agency risk) emerging markets, concentration, currency, derivatives, liquidity, hedging, class currency and currency hedged classes. Pertaining to investments in below investment grade or unrated debt securities, these securities may be subject to higher liquidity risks and credit risks comparing with investment grade bonds, with an increased risk of loss of investment. For RMB hedged class, risks associated with the RMB currency and currency hedged classes risks. RMB is currently not freely convertible and RMB convertibility from offshore RMB (CNH) to onshore RMB (CNY) is a managed currency process subject to foreign exchange control policies of and restrictions imposed by the Chinese government. There can be no assurance that RMB will not be subject to devaluation at some point. The Manager may, under extreme market conditions when there is not sufficient RMB for currency conversion and with the approval of the Trustee, pay redemption monies and/or distributions in USD.
  3. Where the income generated by the Fund is insufficient to pay a distribution as the Fund declares, the Manager may at its discretion determine such distributions may be paid from capital including realised and unrealised capital gains. Investors should note that the payment of distributions out of capital represents a return or withdrawal of part of the amount they originally invested or from any capital gains attributable to that original investment. Any payments of distributions by the Fund may result in an immediate decrease in the net asset value per unit.
  4. Investors may be subject to substantial losses.
  5. Investors should not solely rely on this document to make any investment decision.

Recovering economy, recovering Chinese property bond demand

Sep 2020 (3-minute read)

J.P. Morgan Asset Management

Key takeaways:

  • China is among the first economies to recover after experiencing disruption from the global public health crisis.

  • Like the economic recovery, property sales momentum in China has picked up and could offer support to bonds issued by developers. Within the Asian US dollar (USD) bond market, Chinese property developers are among the major issuers.

  • Within the Chinese property market, there could be more divergence in developers’ performance. There is potential for issuers with strong balance sheets to consolidate and gain market share1.

Even though assets such as equities and gold have been reporting positive growth2 over the past few months, the old saying, “don’t put all your eggs in one basket”, still holds true. In volatile markets, investors can consider diversifying3 into bonds, based on their investment objectives and risk appetite.

The Asian bond market offers a diversified3 suite of opportunities. Among the potential options, we hold a constructive view on the outlook of the Chinese property market. And we believe Chinese property bonds1 offer three compelling factors: 


1. An upturn in Chinese economic activities
 

  • Economic activities in China are regaining strength and recovering from the fallout of the global public health crisis.
  • The latest Caixin/Markit Purchasing Managers’ Index (PMI) data showed China’s manufacturing PMI4 increased to 53.1 in August from 52.8 in July while its services PMI4 stood at 54 in August, compared with 54.1 in July. Both indices have remained in the expansionary phase for four consecutive months, signaling a positive growth momentum.

  • Property sales in China have resumed a growth trajectory with demand mainly from the domestic market,  and lower correlation to global trades. 

Caixin/Markit PMI4 data

4. Source: J.P. Morgan Asset Management, Caixin/Markit, J.P Morgan Economic Research. PMIs are relative to 50, which indicates deceleration (below 50) or acceleration (above 50) of the sector. Data reflect most recently available as of 31.08.2020. Past performance is not a reliable indicator of current or future results. Provided for information only to illustrate general market trends.


2. Emerging opportunities in Chinese property bonds
 

  • In the first eight months of 2020, the aggregate sales of China’s top 100 property developers5 reached RMB7.31 trillion, an increase of 4.7% from the same period last year.

  • Separately, the monthly sales of China’s top 100 property developers turned positive year-on-year (YoY) since March5, from a low of -35.9% in February to +30.7% in August.
     

YoY change in monthly sales of China’s top 100 property developers (January – August 2020) 5

5. Source: CRIC Property Research. Data as of 31.08.2020. Past performance is not a reliable indicator of current or future results. Provided for information only to illustrate general market trends.

 


3. Potential leaders from industry consolidation1
 

  • There are compelling opportunities in the Chinese property bond market. Some issuers are adapting optimally to regulatory changes in the sector, and this plays an important role in credit selection. For example, there is potential for the larger issuers with stronger balance sheets to consolidate with smaller developers, and thus gain market share.

  • It is important to closely monitor the operational performance of Chinese developers and make appropriate credit rotations, especially amid a constantly evolving and competitive landscape.

How are we optimising Chinese property bond opportunities1?
 

JPMorgan Asian Total Return Bond Fund adopts a flexible approach to optimise investment ideas across a wide range of opportunities. Without benchmark constraints, the Fund invests flexibly in bonds covering different industries, locations and currencies, striving for competitive total returns.

Over 40% of the Fund’s bond holdings covered Chinese issuers, as of end-July 2020, including a number of Chinese property bonds to capture compelling opportunities in the market.


Market breakdown6

 

6. Source: J.P. Morgan Asset Managment. Data as of 31.07.2020. Holdings, exposures and allocations for actively managed portfolios are subject to change from time to time. These represents Global Fixed Income, Currency & Commodities team’s views under current market conditions, subject to change from time to time. Provided for information only, not to be construed as investment advice. Diversification does not guarantee investment return and does not eliminate the risk of loss.

 

Conclusion


Expanding economic activities and the growing momentum of property sales in China are supportive of bonds issued by Chinese developers. Investors, based on their investment objectives and risk appetite, could consider a diversified3 approach to tap the income potential of an Asian bond portfolio, and help capture attractive total returns.

JPMorgan China Bond Opportunities Fund

Capture China bond opportunities

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1. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
2. Source: Bloomberg L.P., MSCI. Data as of 31.08.2020. In the three-month period as of 31.08.2020, gold spot price recorded an increase of around 14% while the MSCI World Index rose about 15%.
3. Diversification does not guarantee investment return and does not eliminate the risk of loss.


Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice. Forecasts/ estimates may or may not come to pass.

Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current and future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.

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