Bond Selloff Raises Renewed Contagion Fears in Chinese Property Sector

Financial contagion are coming into focus again in China’s property industry putting renewed pressure on Xi Jinping’s administration to protect the nation’s stronger developers.

Country Garden Holdings Co., largest developer by sales had the worst day on record for dollar bonds. Some of its notes fell as low as 62 cents, while its shares sank to an almost five-year low. The selloff also extended to issuer like Longfor Group Holdings Ltd. And China Vanke Co. for the first time.

Some market strategists expects the situation to get worse unless Beijing steps in.

“The spread of the crisis from weaker names to investment-grade names reflects how long these companies can survive without policy support,” said Anthony Leung, head of fixed income at Metropoly Capital HK, told Bloomberg.

“The best credits can last the longest, but as time goes by and the support doesn’t come, even the strongest cannot survive.”

We see an urgency for the government to stabilize the property sector,” Citigroup Inc. analysts Xiangrong Yu and Xiaowen Jin wrote in a Monday note. “In particular, it may need to provide credit enhancement and relax presale fund regulations for private developers.”