Continued deterioration in the China property sector is likely to lift corporate default rates to above 10% for the first time since the 2008 global financial crisis, according to JPMorgan.
In a note on Thursday, the US investment bank said the Chinese developers’ default rate could be near 40%.
The bank raised its emerging markets corporate high-yield default forecast to 10.7% from 8.5% for 2022, the second hike in a year.
“Notably, the main contributor is unsurprisingly the China property segment, where the default rate is expected to reach close to 40% this year,” Alisa Meyers, an emerging market corporate strategist at JPMorgan in Hoboken, New Jersey, said.
Lockdowns in Chinese cities in response to the Covid-19 pandemic reduced property sector liquidity. There have been so far 24 defaults or distressed exchanges in China for $41 billion.
The bank said that Chinese developers defaulted on their entire bond stock even after extending short-term debt maturities.
“Despite all the chatter about government support, we have only seen some tangible backings to China property demand,” the report added.
The rate would also be affected by the hit on Russian companies from “sanctions and/or technical default” due to the war on Ukraine.
Most Russian banks that issued eurobonds failed to make payments since March “due to restrictions introduced against these banks in the US and elsewhere globally”.
- Reuters, with additional editing by George Russell