Eight out of 18 analysts and portfolio managers in a recent survey believe that China’s local government financing vehicles, a key component in the shadow banking system, will be a top investment opportunity in 2020.
By sector, property development, metals and the mining industry received three votes each, according to the «Bloomberg» survey, which allowed respondents to vote for more than one category. The former sector’s popularity was particularly noteworthy with just three respondents worried about its risk – a stark contrast compared to the last survey also in late 2019 when it was the most dominant preoccupation.
Interest in the 8.4 trillion ($1.2 trillion) LGFV market coincides with ongoing concerns about domestic delinquencies given that onshore corporate bonds have already registered record-high defaults totaling nearly 127 billion yuan ($18.6 billion) in 2019, according to Fitch. Chinese authorities are already preparing enhanced mechanisms to deal with future bond defaults.
Nonetheless, respondents of the Bloomberg survey expressed strong confidence in the ability of LGFVs to avoid generating bad loans. Two-thirds of the respondents see LGFVs avoiding defaults in 2020 though 15 out of 18 expect overall defaults to match 2019.
