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.

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.

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.