ASIA CREDIT CLOSE: China property outperforms amid positive backdrop

Fri Jul 4, 2014 5:11am EDT

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HONG KONG, July 4 (IFR) - Chinese property developers continued their rally this week as an improvement in industry and economic data helped boost the sector.

Those spreads tightened as much as 10bp today after spreads came in 5bp-10bp yesterday, according to a Singapore-based trader.

Among the outperformers were Country Garden's 2023s, which rose 3 points this week and was last cited at 98.5 on a cash price basis. Those bonds were seen in the low 90s area two weeks ago.

The significant improvement in the performance of the sector comes after China Vanke said January-to-June contract sales rose 20.6% to CNY100.9bn (USD16.2bn) year on year.

"The strong market sentiment is helping the turnaround," said the trader. "Investment grade credits that were lagging are also catching up."

Greenland's recently issued 5-year and 10-year bonds continued their tightening trend. A trader cited the dual-tranche notes at 275bp and 332bp, respectively, this afternoon.

China Overseas Land's 5.95% 2024s also closed the week 10bp tighter at 285bp/275bp.

Positive developments on the economic front also gave the sector a boost. China's factory activity hit a six-month high in June, according to the official Purchasing Managers' Index (PMI) published on June 30.

China's banking regulator also relaxed rules on how bank calculate loan-to-deposit ratios.

"That gave markets a sign that there will be more flexibility on funding property purchases, so it's good for the sector," said a credit analyst.

The Asia ex-Japan IG iTraxx index was last bid at 99bp, from yesterday's 100.5bp.

Analysts and traders said they will be closely monitoring earnings results for these developers, who will be reporting first-half results in the coming weeks.

The focal point will be how margins have been holding up amid the weakness in the January-to-June period, which could affect property credit performance in the coming weeks, another analyst said.

The boost in Chinese property came amid a slow week, with Hong Kong off on holiday on July 1 and the US off on July 4. EM dedicated bond funds only received USD180m of inflows in the week ending July 2, according to fund tracker EPFR, compared with the USD520m in the previous week.

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