Case Study
Exploring Investment Opportunity in the Chinese High-Yield Market
Asset Allocation | Opportunity Assessment | Credit Research
Business Need
- Investment professionals of a European Investment Bank wanted to assess opportunities in High-Yield bonds of Chinese Real Estate Developers.
- The real estate sector saw large drawdowns and defaults over the last two years. The investment professionals wanted to validate the hypothesis that the sector had bottomed out.
- They wanted to evaluate if it was the correct time to invest in the market and have an active or passive allocation.
To assess if the market had bottomed out and identify opportunities to generate higher returns.
The client outlined two key reasons for selecting RocSearch:
- Our profound expertise in Investment Research, bolstered by a decade of delivering top-notch research to the Investment Committee.
- Our extensive exposure to the European markets and deep expertise in the real estate sector.
Approach and Methodology
- We conducted a detailed review of the high-yield bond market within China’s property sector and performed a red teaming exercise to analyse the sector’s challenges and advantages from an investment standpoint. This provided the Investment Committee with a clear and comprehensive assessment of potential investment opportunities and associated risks.
RocSearch analysed macroeconomic trends, demographic shifts, market indicators, and government policies to evaluate their impact on the leading real estate developers.
- RocSearch studied the macro and long-term demographic trends that were shaping the housing sector in China.
- We closely monitored the government’s supportive policies alongside those of the central bank, assessing their effects on the sector as well as the asset class.
- We studied the balance sheets of all the real estate developers to determine if they were in compliance with Government policies and credit risks.
Business Outcomes
- The exercise highlighted the risks and opportunities for the Investment Committee to make an informed asset allocation decision.
- The analysis also presented the suitable vehicles and sub-asset classes to execute the trade.
- The study concluded with whether the Chinese high-yield property market was worth investing in and identified a list of fund managers that the client could potentially reach out to.
The insights enabled the client to devise a robust strategy and invest in the promising Chinese high-yield market.
