SHANGHAI- Chinese investors are abandoning an age-old attachment to property investment products and seeking returns in equities and other corners of the capital markets, as the authorities crack down on the debt-fuelled property sector.
The flow of cash into property investment products issued by trust companies has slumped since September, as embattled property giant China Evergrande Group’s debt woes deepened.
That in turn is shutting one of the remaining funding channels for property developers who are already suffering from strict lending curbs onshore and record borrowing costs in the offshore bond market.
“Previous investment logic has collapsed,” said Shanghai businessman Desmond Pan, who is considering shifting millions of yuan in property trust products into Bridgewater’s China fund called All Weather Enhanced Strategy.
Sifting through a brochure with billionaire founder Ray Dalio’s smiling face and a smooth and rising performance curve, Pan reckons the multi-asset fund, with an annualized return of 19 percent, is a suitable investment substitute.
Chinese investors have long had a penchant for real estate investments but the money flowing into property investment products has been shrinking in recent years since Beijing started to curtail shadow banking in 2017. Evergrande’s default on wealth management products (WMPs) in September, which triggered investor protests in many cities, only accelerated that trend.
At the end of June, trust money that invests in real estate totaled 2.1 trillion yuan ($329.3 billion), down 17 percent from a year earlier. In contrast, trust products investing in securities such as bonds and stocks jumped 35 percent to 2.8 trillion yuan, according to the China Trustee Association.
The rotation of money picked up pace in recent months, with fundraising by property-related trust products slumping 38 percent in September from the previous month, and 55 percent in October, according to Use Finance & Trust Research Institute.
“Property-related trust products don’t sell these days, and we see clients step up shifting money into funds with relatively stable returns, such as fund of fund (FoF), and ‘quant funds’,” said a FoF manager at ShenwanHongyuan Group, who declined to be identified as he is not authorized to speak to the media.
Quant funds, or quantitative funds, employ software to automate investment decisions and often generate higher returns than bonds but carry less risk than stocks.
“Chinese policies are nudging capital away from real estate, which is absolutely positive news for the asset management industry,” said Jason Hsu, founder and chairman of Rayliant Global Advisors, which recently launched a multi-strategy hedge fund in China that uses quantitative analysis.
