(Bloomberg) -- One of Asia’s best-performing bond funds is looking for opportunities to pull back from Chinese developers’ offshore notes after raising its holdings during a record rally.
Jane Cai, manager of the ChinaAMC Select Asia Bond Fund, plans the technical shift from not just the country’s property-dominated high-yield space but Asia’s junk market more broadly as China’s new-home sales continue to fall and investors bet on further US interest-rate hikes.
Instead, she’ll be looking at high-grade securities in developed markets around the world as well as yuan-denominated notes sold by mainland Chinese firms offshore. Junk-rated holdings would lean toward “very short durations,” said Cai, whose fund has outperformed 97% of peers the past three years according to data compiled by Bloomberg.
The move by Cai, chief investment officer of fixed income at China Asset Management (Hong Kong) Ltd., comes after monthly reports show her fund quadrupled its real estate sector allocation to 43% from October to January. That exposure was predominantly Chinese builders, and the fund’s largest holdings as of last month included dollar notes from Dalian Wanda Commercial Management Group Co., China SCE Group Holdings Ltd. and Seazen Holdings Co.
There are signs that home sales are ticking up, but it will take a long time to recover, Cai said.
Chinese high-yield dollar notes were the world’s hottest bond trade to start this year, after a series of support measures for the liquidity-squeezed property sector set off a voracious rally from record lows in early November. But the gains have stalled this month amid weakness in bonds globally, as Treasury yields hit 2023 highs on building bets for further US interest rate hikes.
Meanwhile, China’s junk market has been shrinking as the property crisis has prevented many riskier issuers from selling securities offshore. The nation makes up 29% of a Bloomberg index of Asia high-yield dollar notes, versus 53% two years ago.
The parent of Cai’s firm is China Asset Management Co., the country’s second-largest mutual fund company by assets under management, according to a mainland industry association. Her Hong Kong-based team manages about $2.9 billion of assets, she said, with the ChinaAMC Select fund having about $80 million.
(Adds further details on Cai’s views)
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