BlackRock Boosts China Debt Holdings With Focus on Quality Bonds

BlackRock Inc., the world’s biggest money manager, said it’s been raising its stake in China’s bond market as policy makers tackle corruption, runaway debt and an economic slowdown.

“We’ve been increasing over the course of this year,” Neeraj Seth, the Singapore-based head of Asian credit, said at a briefing Wednesday. His firm managed $4.77 trillion globally as of end-March. “It’s slightly higher from the beginning of the year. China is among our largest exposures in the region.”

BlackRock owns Chinese financial bonds across the capital structure, including newer Basel III-compliant notes and securities backed by standby letters of credit from lenders. The firm has “a bit more bias toward quality and investment-grade bonds” from developers after home sales weakened and Kaisa Group Holdings Ltd. flagged corporate governance lapses, Seth said.

Executives at Kaisa and Agile Property Holdings Ltd. were linked to probes amid President Xi Jinping’s crackdown on graft, which has been called the harshest since the 1949 founding of the People’s Republic of China. Authorities have also been grappling with the world’s biggest corporate debt load, and BlackRock expects the nation to further ease borrowing costs and prop up property prices in the process.

“Some of the uncertainty, the unknowns from corporate governance and political standpoint, is hard to call,” Seth said. “I wouldn’t shy away from it, you will have to manage the risk. Specifically, as you go down the credit curve, you cannot have a very concentrated exposure.”

China is reining in credit growth to avert a crunch, including a plan to convert high-cost local government debt into municipal bonds with lower coupons and longer maturities.

“It’s tempting to simply dismiss buying Chinese assets: too much debt, too little growth and too policy-driven,” the firm said in a report on its website this month. “This is a mistake, in our view. One can worry about the economy and rising risks in the long run but be bullish on markets in the short to medium term.”

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