Investors picked local government financing vehicle (LGFV) bonds issued by China’s local government units or LGUs to finance infrastructure projects amid a downturn in equities, according to Bloomberg, citing its own survey.
In its poll of 22 brokerages, banks, mutual funs and insurers, Bloomberg found out that 27% of them picked LGFV debts as the investment of choice this quarter.
“LGFV bonds still have implicit guarantees from local governments and we won’t likely see them default this year or next year,” Bloomberg quoted Cheng Peng, head of investments at Beijing-based Genial Flow Asset Management Co, as saying. “They’re safe and have high yields. Judging from the vantage of both risk and return, they’re the best to invest in.”
Bloomberg said a record 702.6 billion yuan ($113 billion) worth of bonds are set to mature this year and would have to be paid by LGUs.
The Chinese government recently allowed LGUs to issue their own municipal bonds to repay their more expensive, older debts.
China’s stock market has fallen around 30% since its June 12 peak as investors unwinded their portfolios funded by margin loans. Some analysts expect the market to remain fragile despite the efforts of the government to support and stabilize the equities market.
At Monday’s open, the Shanghai Composite Index rose nearly 8% after the government announced more measures over the weekend to boost the market.
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