One in Three Investors Say "China Real Estate Is the Biggest Credit Risk"

BofA Survey of 222 Fund Managers
"0% Chance of China's Economic Improvement in 1 Year"

A survey by Bank of America (BofA) revealed that global investors identify the China-originated real estate crisis as the biggest credit risk to the global economy in the future. The number of investors expecting an improvement in the Chinese economy over the next year was 'zero.' As pessimism about the Chinese economy spreads, short selling of Chinese stocks is also expanding.

[Image source=Yonhap News]

According to Bloomberg on the 13th (local time), a BofA survey conducted this month targeting 222 fund managers showed that 33% of respondents cited the Chinese housing sector as a major credit risk expected to occur in the future, the highest proportion. This is more than double the 15% recorded in the August survey.

The proportion of investors concerned about commercial real estate in the US and European Union (EU) regions was 32%, the second highest. Following that were US shadow banking (financial transactions conducted outside the banking sector and not subject to the same regulatory standards) at 19%, US corporate debt at 4%, and European government debt at 3%.

The China real estate risk began to ignite in early August after the default of Country Garden, China's largest private real estate developer. When Country Garden, hit hard by the downturn in the Chinese housing market, failed to make interest payments last month, concerns about a chain default among Chinese real estate companies spread in the market. Although the company temporarily eased the crisis by extending the maturity of six regional bonds the day before, the amount of bonds maturing within one year is about 108.7 billion yuan (approximately 19.84 trillion won), so it is not yet a stage to be reassured.

The BofA survey also showed a deepening pessimistic outlook on the Chinese economy. Among respondents, the proportion expecting the Chinese economy to improve within the next 12 months was 0%. This is an extreme change compared to the 78% of respondents who predicted an improvement in the Chinese economy in the February survey this year. It is even lower than the 2% recorded in the September survey last year, two months before China lifted its COVID-19 lockdown measures.

Investors also saw a low likelihood of China launching large-scale economic stimulus measures. Sixty percent of respondents expected China's additional support measures over the next six months to be limited to fine-tuning. Only 12% anticipated a so-called powerful 'bazooka' stimulus, and 4% expected large-scale monetary easing. Fifteen percent of respondents predicted that no meaningful measures would be taken.

Accordingly, short selling of Chinese stocks is spreading among investors. Twenty-one percent of respondents cited short selling Chinese stocks as their most frequently used trading strategy, up from 14% in the survey conducted a month ago.

Michael Hartnett, BofA strategist, stated, "One of the biggest convictions among investors participating in the survey is 'avoid China.'"

This content was produced with the assistance of AI translation services.