17 Dec 2021

[SINGAPORE] Singapore’s US$744 billion sovereign wealth fund sees potential opportunities to do deals and buy debt in China’s battered real estate sector, confident Beijing won’t let things “spiral out of control” following several defaults.

“We continue to have confidence that it is a good investment market for us,” said Lim Chow-Kiat, chief executive officer of GIC. “We are not moving away from being involved in the Chinese real estate market.”

China’s property sector has been roiled by defaults at China Evergrande Group and other developers, sparking concerns about contagion that could hamper growth in the world’s second-largest economy.

The sell-off has pushed Chinese junk bond yields above 20 per cent in recent weeks, prompting analysts to start seeing value in the sector. Some firms are raising funds to buy up assets at what they believe to be bargain prices.

GIC, which has been investing in Chinese property for 2 decades, is also seeing potential in the hard-hit sector. The fund has recently struck deals in commercial areas like logistics, and is confident that the Chinese government can contain the fallout from the property crackdown.

“We believe they have enough central bank balance sheet, and within their system they have enough levers to make sure that things do not spiral out of control,” Lim said in an interview from his Singapore office.

When asked if it’s time to go bigger in the space, Lim said it could be, while warning that investors have to be selective about the developers they work with. GIC’s equity holdings included China Vanke Co, the nation’s second-biggest developer, according to Bloomberg data as of September.

“When the market goes through a significant change it could throw up opportunities for long-term investors,” said Lim, who has led GIC for almost 5 years. “We have been looking at them closely.”

Liew Tzu Mi, head of fixed income at GIC, later added that the fund was looking at “potential opportunities” in Chinese property bonds given “the emergence of value in some parts of the market”. She said that investments would be driven by bottom-up evaluations of credit names.

SOVEREIGN BONDS

Liew is also bullish on Chinese sovereign debt, which has risen in tandem with the country’s growing influence. China’s government bonds have jumped 7.3 per cent this year, among the biggest gainers of 46 sovereign markets tracked by Bloomberg.

“We have been actually invested for a long time already,” Liew said, drawn to the bonds’ relative high yields and low co-relation with global markets. “You can infer that we really like that market.”

“Structurally, it definitely has a place in our portfolio,” Lim added. “Probably a bigger place down the road.”

GIC, created 40 years ago to help manage the city-state’s reserves, doesn’t publish its assets, though they are estimated at about US$744 billion by research firm Global SWF. About 34 per cent of the fund’s assets were in Asia, including Japan, as of March.