Fleeing China? Credit Crises Lurk Everywhere in Emerging Markets


Global investors, fed up with the Chinese real estate developer drama, are looking elsewhere for safe havens. They leave disappointed. Credit crises are lurking in every corner of emerging markets and the latest scares are no less dramatic.

Earlier this month, Heungkuk Life Insurance Co. of South Korea surprised bond investors with a decision not to call its $500 million perpetual note. Panic selling spread outside of Seoul. Even perpetuities issued by Hong Kong-based AIA Group, a well-run insurer with an A+ rating from S&P Global Ratings, failed.

The Korean secret police had opened Pandora’s box. It reflected an unspoken market convention that financial companies will always redeem their holdings on their first call day, even if the decision doesn’t make economic sense. Heungkuk changed his mind a week later amid a massive selloff.

As the Heungkuk drama played out, investors began to wonder if Korea, a generally quiet place with a remarkable 76% of its credit rated one-A and above, was also experiencing trouble. Legoland Korea, a theme park operator, disclosed on its commercial paper in late September; The nation’s corporate bond market fell the most on record in October; and corporate credit spreads are at their highest in a decade. Heungkuk’s surprising move may be a sign that like Chinese companies, Korea Inc. also loses the refinancing of its loans.

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At the heart of Korea’s emerging credit crisis appears to be a financial problem. In April 2020, regulators allowed banks to relax their liquidity coverage ratios so they could increase lending to the Covid-scarred economy. But as Korea reopened and Seoul lifted its emergency measures, banks scrambled to make payments, offering higher rates on time deposits and changing the way they lend. Credit for the insurance sector, for one, is seeing a marked slowdown, according to data compiled by Bank of America Merrill Lynch.

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Vietnam, often hailed as the China of the future, is experiencing its own version of developer fears. After the arrest in early October of Truong My Lan, the head of real estate conglomerate Van Thinh Phat Holdings Group, the building is struggling to get loans and sell bonds. A convertible challenge by No Va Land Investment Group came amid media reports that the nation’s second-largest developer is restructuring its business.

When I was on a reporting trip in August, it became clear that, like China, Vietnam is building its own property bubble, and that a systematic crackdown is in the works. From people’s love of real estate, to pre-sale practice, to developers’ poor corporate governance, Vietnam has too much in common with China for Hanoi’s comfort.

Perhaps this explains why investors turn to Chinese developers whenever there is significant news of Beijing’s support. For those looking for the bottom fish, dollar barrels issued by Chinese producer builders have lost two-thirds of their value this year. Meanwhile, the rest of emerging markets aren’t looking any better.

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For years, global investors knew that groups like China Evergrande Group were swimming naked. What they did not know, and are beginning to learn, is that many other developed nations are as audacious swimmers as the Chinese builders.

More from Bloomberg Opinion:

• China’s Property Development Trends Follow Vietnam: Shuli Ren

• Seoul tragedy to test a deeply unpopular Leader: Gearoid Reidy

• Vietnam grows by 7%. He Can Do Much Better : Shuli Ren

This column does not necessarily reflect the editorial opinion of Bloomberg LP or its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, he was a market reporter for Barron’s. He is a CFA charter holder.

More stories like this are available at bloomberg.com/opinion


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