Mon. Dec 6th, 2021


Updates of exchange traded funds

Western investors get their fingers burned after ending up in exchange-traded funds that put China Evergrande’s debt in an increasingly desperate search for returns.

The world’s most culpable real estate developer is struggling with a serious liquidity crisis, which has shocked the entire real estate sector of China and shaken stock markets around the world, especially a number of bond and equity ETFs.

Evergrande’s share price has fallen 85% over the past three months amid growing expectations that the company owes some of its $ 306 billion in debt, equivalent to about 2 percent of China’s gross domestic product.

Some of Evergrande’s dollar bonds are trading below 30 cents on the dollar, as a payment date awaits Thursday.

The newspaper is run by a dozen fixed-income ETFs run by executives such as BlackRock, Van Eck, JPMorgan and Legal & General.

Among them, the 12 ETFs — many of them Asian or high-yield vehicles in emerging markets — have experienced rapid growth in their assets this year, with a combined net inflow of $ 13 billion since December, bringing their total assets to $ 25 , 8 billion take, according to figures from ETFGI, a consultation.

Several of the ETFs that ended up in the downturn continued to experience faster growth, illustrating how many investors may have been caught out by the rate of reversal in sentiment.

The assets of BlackRock’s iShares USD Asia High Yield Bond ETF (O9P) quadrupled from $ 148 million at the end of 2020 to $ 593 million as of Monday. Its share price has fallen by 8% over the past three months.

At the beginning of the week, the ETF had seven Evergrande credits with a combined weight of 1.58 percent. The bonds, with an expiration date of 2023 to 2025, have coupons ranging from 7.5 percent to 12 percent. All trade at about a quarter of their face value and are now rated C by the major rating agencies.

Its other holdings include bonds issued by Fantasia Holdings and Easy Tactic, two other Chinese real estate developers, which trade at 45 cents and 53 cents on the dollar, respectively.

“With returns on most fairly safe bonds, in fact nothing, if not negative, investors have placed a premium on just about anything that yields more than zero, in real terms,” ​​says Ben Johnson, director of global ETFs and passive strategic research. by Morningstar. “Whether these effects deserve an allocation at all is another question.”

Evergrande shares are held by about 130 stock-based ETFs, although almost all have a very small allotment to the company.

This includes the Global X MSCI China Real Estate ETF (CHIR), which has fallen over the past three months and 15.3 percent in the past week as its assets fell from $ 14.2 million to just $ 3.5 million in February. On July 31, the ETF, according to TrackInsight data, exposed only 1.7 percent to Evergrande, but it was also hit by the wave of negative sentiment affecting the larger Chinese real estate sector.

‘There was a desire for more closely focused ETFs that could provide high income and diversification of more broadly diversified index-based products. But of course, the higher the return, the higher the risk, ”says Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.



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