Chinese demand for yield is showing few signs of abating even as risk sentiment has started to recover, as shown by the buying frenzy for real estate investment trusts.
The retail portion of a new pharmaceutical infrastructure-based REIT was oversubscribed by a record 1,192 times Wednesday as it raised 1.16 billion yuan ($214 million), according to a stock exchange filing.
Demand for the China Universal Jointown Pharmaceutical Warehousing & Logistics infrastructure fund easily surpassed the previous record held by Guotai Junan Jinan Energy Heating infrastructure fund, which was oversubscribed by 813 times last month.
REITs were launched in China in 2021 as a way to channel capital into large-infrastructure projects in exchange for a relatively consistent flow of dividend income. Investors have been snapping up these funds over the past year as part of a shift toward fixed-income assets that has helped drive sovereign bond yields to record lows.
“There’s a great amount of scope for China’s REITs market to grow as it’s now a market of just hundreds of billions of yuan even after the pace of issuance has picked up,” said Li Qinghe, an analyst at Guolian Securities Co. in Shanghai. “In the US and Japan, the market capitalisation of these trusts represent 2% to 3% of GDP, which implies the potential for at least 200 billion yuan to raised by the end of 2025.”
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A total of 28 REITs were listed in China last year raising a record 64 billion yuan, according to data compiled by Bloomberg. The number of new listings almost tripled from 2023, when demand for the asset class was weighed down by concern over the slowing economy and slumping equity market.
The 59 Chinese REITs tracked by Bloomberg have returned around 16% in past three months, while the benchmark CSI 300 Index of stocked has slipped almost 5%. That’s a turnaround from last year when a gauge of 35 REITs compiled by the China Securities Index Company returned 4%, trailing the 15% gain from the CSI 300 Index.
Chart: Bloomberg
