JPMorgan has proposed an alternative to its popular index of Asian corporate bonds that slashes the weighting of Chinese issuers, following a financial crisis in the country’s real estate market that has choked off new issuance from the highly indebted sector.
The new version of the JPMorgan Asia Credit index (JACI) would seek to compensate for a lack of new dollar bond sales by Chinese property groups — almost all of which have been frozen out of international markets for more than a year — by adding corporate debt from other Asia-Pacific countries, according to a person with direct knowledge of the matter.
Those additions would take China’s weighting in the new index to roughly 30 per cent, the person said, compared with about 43 per cent in the existing benchmark, which is followed by fund managers with more than $85bn in assets under management. The alternative index would expand to include Japanese and Australian issuers, weighted at about 20 and 10 per cent respectively.
The plans from JPMorgan — whose indices hold considerable sway over global bond investors — come after the number of issuers in the existing JACI benchmark shrank to about 450 at the end of last year, from more than 600 before Beijing launched its crackdown on excessive leverage in the property sector two years ago.
“[The new index is] about actively trying to expand the market scope, and as a result the weight of China gets impacted because there are new countries being added,” the person said, adding that the new additions would bring total issuers available for inclusion back above 600.
The proposed alternative index, which was first reported by Reuters, has not yet been finalised and would not directly affect investors tracking the existing JACI benchmark.
China’s property sector has historically been a driver of high-yield dollar bond sales in Asia, but many global debt investors remain wary of the most indebted developers following the government clampdown.
That is despite a rally for dollar bonds from higher-quality companies, which have been buoyed by efforts from Chinese authorities to bolster the hard-hit sector and ramp up economic growth as the country seeks to put years of disruptive zero-Covid policy behind it.
Support from Beijing has helped push up the Bloomberg China high-yield dollar bond index, dominated by the country’s property groups, about 46 per cent from a record low touched in early November.
But the index is still down more than 40 per cent from a record high reached in late 2021. Just one Chinese property group, Dalian Wanda, has successfully tapped global dollar debt investors this year.
Investment bankers in the region say that despite support from Chinese policymakers, only a handful of the country’s largest developers have access to international debt markets, and those are likely to be deterred by high borrowing costs.
“The [international] market is open for the four to five developers left with solid financials,” said a senior Hong Kong-based debt capital markets banker with one European lender. “The problem is they don’t want to issue.”
