Beijing Fresh Crackdown Grows Wary of Investors on All Investment Grade Debt Securities

Losses in Chinese debt markets are spreading beyond the real estate sector which has send the nation’s investment grade bonds to to a 21-month low as creditors concern grows over even blue-chips borrowers.

Concern including Beijing’s crackdown on tech companies to rising U.S. rates as well as Russia-Ukraine conflict played a major part in fall in investment grade bonds.

The tumble in Alibaba’s bonds sent the yield spread on its 10-year dollar note to a record high on Thursday. Bloomberg index of Chinese investment-grade debt dropped to the lowest level since June 2020.

The selloff is burning investors who thought higher-rated bonds would provide a haven from the liquidity crisis that triggered record defaults by developers including China Evergrande Group.

“In light of the intensifying Russia-Ukraine conflict, there are sellers for off-the-run names, new issues, and high-beta names,” said Wu Qiong, executive director at BOC International, as reported by Bloomberg.

In terms of consumer discretionary companies, earlier this week, S&P Global Ratings put Haidilao, which has a BBB credit rating, on negative watch, citing the restaurant chain’s latest profit warning. The company is expected to incur over 3 billion yuan ($474 million) of losses from the closure of more than 300 restaurants last year.
Fitch downgraded SJM Holdings on Monday, citing China’s travel restrictions and uncertainty over a new gaming law in the former Portuguese colony.