China's Real Estate Market Still Feeling Effects of Evergrande Crisis

Unlike the stock market, the real estate market isn’t privy to quick rebounds. China is showing just that as the real estate market continues to languish following the Evergrande Crisis that stumped the second-largest economy last year.

Global investment firm Goldman Sachs is already looking at more pain ahead in China’s real estate market. The firm foresees more defaults in the future.

“Twenty-two China high-yield bond issuers, all related to the property sector, have either defaulted on their U.S. dollar-denominated bonds or deferred repayment with bond exchanges since the start of this year, analysts Kenneth Ho and Chakki Ting wrote in a report Friday,” a CNBC report noted.

“Given the pick up in stresses, we raise our FY22 China Property HY default rate forecast to 31.6% (from 19.0% previously), which was our previous bear case assumption,” Goldman Sachs analysts said.

Of course, this can all change as markets recover, but as mentioned, the real estate market can’t simply snap back from a downturn the way the stock market can. That said, investors should tread lightly.

“We are unlikely to see a broader recovery in China Property HY until property sales begin to show signs of a rebound,” the analysts noted.

Playing a China Real Estate Rebound

For investors who are willing to accept the risk but foresee a rebound in China’s real estate, one ETF to look at is the Global X MSCI China Real Estate ETF (CHIR). CHIR seeks to provide investment results that generally correspond to the price and yield performance of the MSCI China Real Estate 10/50 Index, which tracks the performance of companies in the MSCI China Index classified in the real estate sector, as defined by the index provider.

Overall, CHIR provides:

  • Targeted exposure: CHIR is a targeted play on the real estate sector in China, which has the world’s second-largest economy by GDP.
  • ETF efficiency: In a single trade, CHIR delivers access to dozens of real estate companies within the MSCI China Index, providing investors with an efficient vehicle to express a sector view on China.
  • All share exposure: The index incorporates all eligible securities as per MSCI’s Global Investable Market Index Methodology, including China A, B, and H shares, red chips, P chips, and foreign listings, among others.

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