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Asia high-yield exchange traded funds attracted significant inflows despite a large drop in returns in the second half of the year.

The Singapore-listed iShares Barclays USD Asia High-Yield Bond ETF attracted $ 1.37 billion in net inflows in the last three months of 2021 after dominating the net inflows in ETFs listed on the Singapore Stock Exchange last year.

In Hong Kong, Premia Partners’ Premia China USD Property Bond ETF, which became the area’s first high-yield bond ETF when it was listed in April last year, had $ 10.22 million in net inflows during the fourth quarter in 2021 lured, data from Morningstar Show.

Elsewhere, Haitong International’s London-listed Tabula Haitong Asia ex-Japan High Yield Corporate Bond ESG ETF, which was launched in September last year, its assets grew tenfold to $ 205.9 million over the same period.

The inflow continued to rise, even though the performance of these Asian high-yield ETFs has declined over the past six months.

This article was previously published by Ignite Asiaa title owned by the FT Group.

The Net Asset Value of the BlackRock Asia High Yield ETF drop more than 23 percent between May 2021 and mid-January 2022, while the Premier Partners real estate bond ETF has fallen more than 40 percent since its inception.

The high-yield bond market in Asia has been dominated by debt in U.S. dollars issued by Chinese real estate giants, which is also facing tougher restrictions on loans and declining home sales.

It was first caused by Evergrande Group, the world’s most indebted real estate developer, who missed an interest payment on a foreign mortgage on September 23 and was deemed defective by Fitch in December. China’s debt-laden real estate sector has reported several similar warnings over the past few months about overdue mortgage payments from several Chinese real estate developers.

But this turmoil has not deterred many global investors from heading to Asia’s high-yield bond market, with ETFs providing a convenient and liquid entry point, a trend that has continued this year.

“Despite recent volatile conditions in the China real estate sector, we have continued to see significant levels of net creations in our Singapore-listed Asia high-yield ETF since the beginning of the year,” BlackRock said, adding that interest has been noted from institutions in the Asia-Pacific, Europe, the Middle East and Africa.

Frederick Chu, Hong Kong-based head of ETF business at Haitong International, said his Asian high-yield ETF had attracted the interest of several European investors who saw the current crisis as an opportunity to “move to a relatively cheap level”. to step upside down “.

Both tactical traders and long-term allocators, including asset managers, pensions and private banks, have been buying into the product in recent months, he said.

The opportunity to diversify away from single bonds has contributed to interest in the ETFs, observers said.

Rebecca Chua, managing partner and founder of Premia Partners, said investors had “suffered significant losses in their single-bond positions” during the China real estate sector’s debt crisis.

While some investors were looking to overcome the crisis, most investors were looking for a long-term investment solution, according to Chua.

All three ETFs have had exposure to securities issued by developers downgraded by international rating agencies, or whose credit has been downgraded.

For example, the iShare ETF keep three Evergrande bonds with expiration dates between 2024 and 2025 currently rated by Moody’s as C, the lowest level with little prospect of recovering capital or interest. Fitch ratings downgraded Evergrande, and subsidiaries Hengda and Tianji to “limited default” in December.

Premia’s ETF weighed 2.24 percent against a Sunac bond that expires in 2024. Sunac China Holding was downgraded to BB- with a “negative” outlook for the group by Fitch Ratings on January 19th.

Meanwhile, the Haitong ETF holds two bonds, which expire in 2023 and 2026, issued by Logan. The 2023 stake fell to about 65 cents in January from about 98 cents at the end of December, Bloomberg data Show.

While none of those real estate giants have declared bankruptcy, as some have managed to defer payment or secure new loans just before the expiration dates, increasingly foreign bondholders are becoming becoming frustrated to receive many different treatment compared to foreign investors.

A group of investors holding more than $ 1 billion worth of bonds issued by Evergrande on January 20 protested against what they described as an “opaque” and exclusive debt restructuring process led by the group and local government. The investors warned against legal action due to a lack of “substantial involvement” of the company. Evergrande, which is restructuring, is prioritizing the homeowners.

* Ignites Asia is a news service provided by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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