A rebound in the Chinese property sector, spurred by the post-COVID reopening and government support, was short lived, and the prospect of a broad recovery in 2023 seems unlikely due to high leverage and excess housing stock in lower-tier cities. As a result, investing in the Chinese property bond market is challenging. But we see light at the end of the tunnel. Although the opportunity set has narrowed significantly, with more than half of developers we cover in deep distress (some facing default), we expect surviving developers to be less levered and more cautious about their future development, resulting in a healthier investment environment.
