Investors optimistic on Chinese growth, says ETF issuer Tabula

Mar 24th, 2023 | By | Category: Fixed Income

European investors are bullish about China’s economic growth prospects, according to research conducted by fixed income ETF specialist Tabula Investment Management.

Michael John Lytle, CEO of Tabula Investment Management

Michael John Lytle, CEO of Tabula Investment Management.

The study, which surveyed the views of European professional investors collectively managing over $250 billion in assets, found that 84% of respondents expect Asian economies to avoid a recession this year.

The main factor driving this optimism was China’s scrapping of its zero-Covid policy, ending draconian restrictions in the country.

While China has set an official economic growth target of around 5% for 2023, a third of European professional investors expect it to surpass this level.

Notably, investors are also increasingly optimistic about China’s real estate sector which has slumped over the past two years after Beijing cracked down on developers’ high reliance on debt for growth. Almost all (98%) of those interviewed believe that deleveraging China’s real estate sector will lead to a significantly stronger base for the industry going forward; nearly half (47%) strongly agreed with this view.

New home sales in China fell in 2021 and 2022 but sweeping measures, such as the removal of restrictions on mortgage lending, have convinced nearly two-thirds (62%) of European professional investors that sales will return to its long-term growth trend this year.

Despite the rosier outlook, a potential challenge noted by investors is rising prices with 86% of respondents believing that China’s inflation will breach the government’s preferred ceiling of 3% this year. Tabula notes that domestic savings are at an all-time high and with three years of Covid restrictions coming to an end, a wave of spending will likely be released.

Commenting on the survey results, Michael John Lytle, CEO of Tabula Investment Management, said: “Like all major economies, China endured a difficult period during the Covid pandemic. This was aggravated by the government’s desire to de-lever and control the country’s rapidly growing property sector. With Covid restrictions removed, and a series of supportive policy measures for the real estate sector deployed, the country is now on a strong footing for growth. Our research shows huge investor confidence in the government’s policies to support this growth.”

Tabula offers the $290 million Tabula Haitong Asia ex-Japan HY Corp USD Bond ESG UCITS ETF (TAHY LN) in Europe which provides ESG-tailored exposure to high yield corporate bonds from issuers domiciled in Asia, excluding Japan.

As of the end of February, Chinese issuers accounted for nearly half (48.4%) of the fund’s weight followed by firms from India (20.4%), Hong Kong (11.7%), and Indonesia (10.1%). Issuers from the real estate sector accounted for approximately a third (34.2%) of the total allocation, while the next-largest sector exposures were financials (28.2%), energy (19.0%), and industrials (9.8%).

The fund currently offers a yield of 14.5% and has returned more than 50% since 1 November 2022.

The ETF comes with an expense ratio of 0.60% and is classified as an Article 8 product under the EU Sustainable Finance Disclosure Regulation (SFDR).

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