A relief rally boosted risk-sensitive assets including Chinese developers, junk bonds and the Australian dollar after China Evergrande Group paid interest on one of its dollar bonds.
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The Shanghai Stock Exchange Property Index rose as much as 4.6%, while high-yield dollar bonds rose three cents on the dollar. Leveraged funds bought the Aussie on the repayment report, a trader said, though the currency later pared gains.
The repayment helps soothe concerns that the world s most indebted developer is heading towards a default after a plan to sell a stake in a unit collapsed this week. Contagion fears had gripped traders across markets, even as Chinese policyholders said the crisis will be contained and acted to ease pressure on other real estate companies.
Evergrande s debt pile is massive and while the bond payment is anecdotally positive, it s still only a tiny portion of what s due over time, said Derek Tay, head of investments at Kamet Capital Partners Pte. Its debt woes will still linger, especially since its asset sales efforts to raise funds or deleverage haven t been quite successful. Real estate companies in China were also lifted by comments from the nation s banking regulator on Thursday calling for support for first-home purchases. The sector s rally could extend into November, rising by another 10% to 15%, according to Citigroup Inc. analysts including Griffin Chan.
Seazen Holdings Co. jumped by a 10% limit in Hong Kong, while China Resources Land Ltd. advanced 7.5% to be one of the top contributors to Shanghai's Hang Seng Index.
The Hang Seng Properties Index is nearing a technical bull market, having rallied more than 18% from its low in September.
The policy tone and the fact that funds have very little exposure to the sector means that there is much potential for a rebound, said Huang Yuhang, fund manager at Lanqern Capital Management Co. We have begun to position here as well as the worst is probably over. However, real estate is after all, not an area to expect high growth in the years to come. According to credit traders, high-yield junk bonds in the region gained. In China, they rose as much as 3 cents on the dollar, leaving them up about 4.5 cents this week, which would be the biggest weekly gain since 2012.
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