Chinese real estate could be getting out of a funk propagated by last year’s Evergrande crisis, which could open up opportunities for thematic plays.

As expected, it will be a long, drawn-out comeback rather than an overnight return to form. China may see a 2022 that’s fraught with more defaults.

“Investors should expect more Chinese real estate defaults in 2022 – that’s the view of one of the most respected specialist Asian investment firms in the United States,” an Asia Markets article says. “Amid the well publicized China Evergrande debt crisis, a series of other Chinese real estate defaults have occurred in the later stages of 2021 and into 2022.”

However, some market analysts believe that this won’t completely drag down Chinese estate into oblivion. Smaller property developers that took on more debt than they can handle will experience rough times.

“In our view, smaller developers that are over leveraged are at highest risk of default this year. We would also expect to see more debt extension and distressed debt exchange to happen this year,” said Teresa Kong, portfolio manager at Matthews Asia. “While the total defaulted may not exceed last year’s $44.7 billion, we may see more smaller developers defaulting.”

A Comeback in the Works?

One ETF to look at is the Global X MSCI China Real Estate ETF (CHIR). The fund is up close to 14% to start the year, giving signs that investors could be warming up to Chinese real estate again.

CHIR seeks to provide investment results that generally correspond to the price and yield performance, before fees and expenses, of the MSCI China Real Estate 10/50 Index. The fund invests at least 80% of its total assets in the securities of the underlying index and in ADRs and GDRs based on the securities in the underlying index.

The underlying index tracks the performance of companies in the MSCI China Index classified in the real estate sector, as defined by the index provider.

  • 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.

CHIR Chart

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