China Property (thread #5)

Its been exactly a year since the 1st thread on this. Broad-based, coordinated easing eventually came much later than anyone had expected.

JPM has a timeline of easing events over the past year which has yet brought the industry out of the woods.
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https://twitter.com/ssinvestments8/status/1484059606355570689

China Property

First, let's look at the damage. The sector ended up with a 54% default rate or USD 54bn on offshore USD debt in 2022. This was worse than a 31% bear case scenario predicted by GS a year ago.

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China in 5 charts (1/5)

What drives overall China equities?

When China Internet $KWEB outperforms MSCI China (grey line), its often positive for China equities $MCHI (orange line).

#China China in 5 charts (2/5)

How does China equities perform when USD weakens?

When USD weakens, China equities strengthens.

Inverted $DXY in grey and $MCHI in orange here.

#China #macro

China equities - A final top-down look in 2022

MSCI China will be down over -20% for the second year if the year ends today, and the worst yearly decline since 2008. Property crisis, Common Prosperity, US-China tensions and US delisting fears top a full list of risks.
1/ Here is a breakdown of MSCI China by listing locations and sectors (based on $MCHI).

First, on listing location.
1) Delisting risk is almost off the table by now. Only 8% of the index remains listed in the US and half of that are also listed in HK.

and...

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China Property (thread #3)

Game-changer here?
Liquidity of USD20bn coming vs Mar/Apr maturity wall of USD12bn.

Likely for asset acquisitions, not debt bailout.

Implications for equities/bonds?
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#China #property prev threads:

https://twitter.com/ssinvestments8/status/1484059606355570689?t=UP07u1blJEnDuabzLT4w-w&s=19

https://twitter.com/ssinvestments8/status/1499659446192336896?t=UP07u1blJEnDuabzLT4w-w&s=19

China property HY fell -54% and equities -33% since mid-2021.

Bigger dip may not imply bigger rebound.

Equities can be diluted as bonds can be written down. But after that's done, equity returns are symmetric vs asymmetric for bonds, i.e. better risk compensation. $CHIR
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China Property (thread #2)

Continued stress as developers sales -50% YoY, but home price drop eased.

Property equities $CHIR retreated but +1% YTD.

Bonds -33% YTD with "sell first, think later" mentality. No trust.

More background in prev thread:

https://twitter.com/ssinvestments8/status/1484059606355570689?t=zLnMECSp8DwvBTpxBPR5hw&s=19

1/ Total lack of trust with hidden off-balance sheet debt uncovered bit by bit.

Basically hidden as "minority interest" within balance sheet equity.

With net debt to total equity and to shareholders equity at 68% and 115%, it implies hidden debt at 41% of equity.

h/t @jpmorgan
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China equities: A look under the hood (thread)

Monetary easing and rising credit impulse are positive for equities. Valuations are low but technicals
mixed.

Key drags incl Common Prosperity/Internet regulations on $MCHI (not econ) and #Fed hikes.

#China
h/t @jpmorgan
1/ Past instances of monetary easing and broad credit growth were positive for equities and economy.

No longer as crystal clear for equities with Common Prosperity "guidance" on index heavy-weight
Internet/tech sector - 32% in just top 10 of $MCHI.

h/t @jpmorgan @iShares
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China property market thread #China #RealEstate

1/6 - Base case default rate is 19%. Bull case is 10%...

@GoldmanSachs 2/6 - 60% of property HY bonds are trading below $40.

@HSBC