Investment

Hedge fund expects China's distressed debt generating returns

China/Bloomberg

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Distressed dollar bonds from Chinese issuers have had their best start to a year since 2012.

Thursday 14, March 2019

(Bloomberg) --Bets on beaten-down Chinese distressed bonds could pay off if the nation persists with its credit easing and there is a sustained rally in the domestic stock market, according to an Asia-based hedge fund that manages $3.5 billion.

A strategy that includes investing in these notes “could generate out-sized returns” if an improving economy and share gains help investors recover more money from troubled debt, said Kevin Wu, a portfolio manager at Pinpoint Asset Management.

Wu is one of the managers of the Pinpoint Multi-Strategy Fund, an offshore hedge fund which has posted an annualised return of 11 per cent since June 2014. Pinpoint Asset, which has been involved in high-profile Asia restructurings including that of troubled commodities trader Noble Group, also runs three onshore hedge funds.

It’s not a sure bet though. Investors have yet to see clear signs of the Chinese economy bottoming-out in the near-term, and any truce in the US-China trade war could lead to the Asian nation “re-igniting” its deleveraging campaign, Wu said. China’s world-beating stock rally this year is also seeing strains with one of the worst routs in years catching traders off guard on Friday.

Chinese distressed bonds have returned 10 per cent this year, the most since the similar period in 2012, according to an ICE BofAM index.

The nation has been rolling out measures aimed at spurring lending, especially to smaller businesses, with credit growth showing tentative signs of picking up. So far, there has been no relief for the riskiest borrowers in the world’s second-largest economy. Chinese corporations reneged on $2.2 billion of local bonds in the first two months, a record for the period.

TAGS : Pinpoint Multi-Strategy Fund, Pinpoint Asset Management

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