Fidelity International fund and BlackRock China Bond Fund are reportedly losing investors, with as much as US$95.3 million and US$37.9 million, respectively, withdrawn from the pair in the week ended Wednesday, The Australian Financial Review reported on Monday, citing EPFR Global data.
These record withdrawals are the first signs of an investor exodus on the back of Evergrande fears, which have also rocked stock markets since news of the ailing company’s financial woes intensified last week and talk of a Lehman Brothers-like scenario circulated.
Uncertainty is still high as the world awaits word on the missed US$83.5 million payment deadline last week and as China perceivably braces for economic backlash with an injection of 120 billion yuan ($25.5 billion) into the banking system.
Acknowledging that last Thursday's payment deadline did come and go amid a “disconcerting silence”, Seema Shah, chief strategist at Principal Global Investors, believes that the current declines following Evergrande bondholders’ tumbleweed experience are not the precipitous falls of a week ago.
“At the moment, the indications are investors have confidence that, while the economy is likely to slow further as sentiment sours and the property market cools, this episode will not lead to full-blown, systemic ‘contagion’,” said Ms Shah.
“Our belief is that the Chinese government is sensitive to the need to avoid wider financial risks and would not allow the Evergrande situation to develop into a Lehman-like scenario. The regulators already have considerable experience in containing risks posed by troubled institutions and will move to break the self-reinforcing feedback loops within the channels of financial risk,” she noted.
Nevertheless, until there is a clear resolution, Ms Shah tipped international investors may sit on the sidelines.
“If bondholders are forced to the table to discuss a restructuring, all eyes will be on the way in which the discussions are conducted as they will serve as a window into the extent of China’s efficiency as an international capital market,” she said.
Similarly, AMP’s Shane Oliver believes there are several compelling reasons that suggest Chinese authorities will step in and prevent a full-on credit squeeze, including fear of social unrest.
“A collapse in the economy and property sector on the back of the pandemic could trigger a surge in social unrest,” Mr Oliver warned.
Moreover, he is confident the Chinese government has learnt from the Lehman-instigated bust.
“The 'resolution' of a renminbi debt payment due on 23rd September and the relative calm in China’s own debt markets are possibly signs that the Chinese authorities are working towards a restructuring,” Mr Oliver said.
Last week, Evergrande Group's main unit, Hengda Real Estate Group, serviced an interest payment on the Shenzhen-traded 5.8 per cent September 2025 bond. Hengda's Shenzhen exchange filing did not, however, mention the offshore bond also due last Thursday. This still remains an enigma, however the bond is said to have a 30-day grace period.
Investors are also keeping an eye out on the upcoming 29 September payment worth a further US$45 million for March 2024 notes.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
