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A recent DMSA study analyzing the top ten Asia-focused pension and mutual funds with the largest exposure to Evergrande bonds shows: Evergrande and general China exposure has led to losses of up to 21 percent this year in all 10 funds studied; across all 10 funds combined, losses total $7 billion. Current Evergrande bond prices are about a quarter per dollar (about 25 percent of 100 nominal) and, based on Fitch redemption rates, will fall to 5 percent per $100 upon insolvency. Therefore, a further correction of 6 percent or $2 billion is expected. "If Evergrande will be bankcrupt, the above funds would lose $9 billion in total year-to-date. This does not take into account real estate companies that are still well valued and which could also be on the verge of insolvency. The funds' losses then exceed the $10 billion mark," explains DMSA senior analyst Dr. Marco Metzler. It also shows that with only $1.2 billion of reported official Evergrande bond exposure, the losses are significantly higher than the nominal bond exposure by a factor of 10. "The difference can only be explained by possible additional investments in other bonds from Chinese real estate developers and credit default swaps (CDS)," analyzes Dr. Metzler. According to a research report by investment bank Goldman Sachs, the market's CDS exposure to Evergrande is said to be around $158 billion. "This shows that extent of the spill-over effects of the Evergrande bankruptcy. In addition to the $23.7 billion in bonds, another $158 billion would then be lost," Dr. Metzler summarized. Valued at $55 trillion, the Chinese real estate market is twice the size of that in the United States. It generates 29 percent of China's gross domestic product, compared with 10 to 20 percent in other nations, and has been called the most important sector of the global economy. But with the mountain of debt from real estate developers like Evergrande and funds overweight in real estate bonds, many are now experiencing dramatic losses. According to the information available, the Asian High Yield funds of Fidelity and UBS are the ones with the highest Evergrande exposure. Name ParticipationIssued Data Fantasia Data delivery pcs. in % delivery Participation Fantasia ======================= ======== ========== ======== ============= ============= FIDELITY - ASIAN HIGH 215.056.3050,91 30.06.2021- 30.09.2021 YIELD ----------------------- -------- ---------- -------- ------------- ------------- UBS - Asian High Yield 171.924.0000,73 30.09.202153.050.000 30.09.2021 USD ----------------------- -------- ---------- -------- ------------- ------------- Ashmore SICAV - 166.656.0000,7 30.09.202128.208.000 30.09.2021 Emerging Markets TR ----------------------- -------- ---------- -------- ------------- ------------- Ashmore SICAV - 140.016.0000,5 30.09.202147.841.000 30.09.2021 Emerging Markets LC ----------------------- -------- ---------- -------- ------------- ------------- iShares USD Asia High 134.439.0000,5 08.11.20212.300.000 08.11.2021 Yield Bond ETF ----------------------- -------- ---------- -------- ------------- ------------- PIMCO Asia High Yield 111.300.0000,47 30.06.202117.400.000 30.06.2021 Bond Fund ----------------------- -------- ---------- -------- ------------- ------------- BlackRock - Asian Tiger 88.589.0000,37 31.05.202138.535.000 31.05.2021 Bond ----------------------- -------- ---------- -------- ------------- ------------- Fidelity - Global Multi 76.007.6400,32 31.08.2021- 30.09.2021 Asset Income ----------------------- -------- ---------- -------- ------------- ------------- Eastspring Investments 58.950.0000,25 30.09.202148.450.000 30.09.2021 - Asian Bond ----------------------- -------- ---------- -------- ------------- ------------- AB FCP I - Global High 28.460.0000,12 30.09.2021- 30.09.2021 Yield Portfolio ----------------------- -------- ---------- -------- ------------- ------------- 1.191.397.945 235.784.000 ----------------------- -------- ---------- -------- ------------- ------------- Participation on Evergrande and Fantasia Bonds Looking at the average ratings in the affected funds, the Fidelity Asian High Yield Fund has a weight of 34.2 percent invested in real estate with an average rating of BB. This has lost 17.3 percent in value this year. The UBS Asian High Yield Fund, with an average rating of BB-, holds 45.7 percent in real estate bonds. This has lost 20.8 percent in value this year. "The top ten funds hold $1.2 billion in Evergrande bonds," said Dr. Marco Metzler. "However, there is another $236 million exposure to other real estate companies such as Fantasia, and it is quite clear that the funds under consideration are overweight the real estate sector. They hold up to 45 percent in real estate bonds, which may now be their undoing." (continues)