More fiscal support the catalyst to revive consumption and housing market in China, Pimco says

More fiscal support the catalyst to revive consumption and housing market in China, Pimco says

More fiscal support the catalyst to revive consumption and housing market in China, Pimco says

Pimco, one of the world’s largest asset managers overseeing assets worth US$2 trillion, has called for more fiscal support from China to prop up consumer sentiment and the housing market.

Policy support such as the People’s Bank of China’s announcement last Wednesday of a 50 basis-point cut to banks’ reserve requirement ratios from February 5 and talk of a stabilisation fund to support China’s equity markets are all positive steps, Mohit Mittal, Pimco’s chief investment officer in core strategies, said in an interview with the Post.

But more can be done.

“So far, fiscal support is targeted towards public housing as well as AI [artificial intelligence] and hi-tech investments within the region,” Mittal said. “But if that is expanded a little bit, recognising the weakness in the property space as well as consumer sentiment, that could be a positive catalyst for a recovery in the region.”

Mittal, a Pimco veteran of 16 years, took on his current role in December to oversee fixed-income portfolios across the asset manager’s core suite of strategies, and to lead the core portfolio management team.

Significant repricing in China’s property sector over the past two to three years has pushed down the sector’s representation in Pimco’s US$2.4 billion Asia high-yield bond fund, he said.

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“But, to the extent that there is positive policy support that can cause a recovery within the housing sector and subsequently within the home builder space, that could be a positive driver for returns for the Asia high-yield [bond fund],” Mittal said.

The fund has exposure to Chinese real estate companies such as Agile Group Holdings, Wanda Properties Global and Country Garden Holdings. It has delivered a year-to-date return of 1.79 per cent, outperforming its peers’ 0.55 per cent, according to Bloomberg data.

While China has stepped up policy easing, key issues such as the lack of credit demand from borrowers and an overhang of excess inventory in the Chinese property sector remain unsolved, Goldman Sachs said in a research note on Sunday. The US bank believes that at some point, policymakers need to address the problem of excess real estate inventory to restore the sector’s health.

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In the high-yield space, Mittal sees opportunities in India’s infrastructure-related bonds and Macau’s gaming industry. Pimco’s high-yield bond fund is heavily invested in both sectors.

For example, India’s Greenko Wind Projects is the fund’s third-largest corporate holding, while Macau casino operators Melco Resorts Finance and MGM China Holdings are in fourth and sixth place, respectively.

“Macau lagged from a demand recovery perspective, but it’s starting to pick up, which could lead to the outperformance of Macau gaming in the region,” Mittal said.

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