“Pacific Investment Management Co.’s top debt picks are utility and energy companies that will benefit as China shifts to a consumer-driven economy, while indebted companies tied to the old export-led model suffer.
“We put our highest conviction in utility and energy sectors,” Raja Mukherji, Hong Kong-based head of Asian credit research at Pimco, manager of the world’s biggest bond fund, said in an e-mail interview on April 12. A shortage of energy resources and undeveloped distribution networks for consumers “creates opportunities if we can invest in the future winners early,” he said.
Utility and energy bonds gained 0.7 percent and 0.8 percent this year through April 18, the second- and third-worst performers among 12 Chinese sectors tracked by Bank of America Corp. That compares with a 2.6 percent return for real-estate bonds and an average of 2 percent for all dollar-denominated Chinese debt. Energy bonds handed investors a 37.4 percent return, topping an index average of 24 percent during China’s economic slowdown from April 2010 to September 2012.
Fitch Ratings Ltd. cut China’s sovereign ranking this month and Moody’s Investors Service lowered its outlook to stable from positive, citing risks from rising debt loads and the potential impact on the economy. LDK Solar Ltd. failed to fully pay notes last week after rival solar panel producer Suntech Power Holdings Co. defaulted on $541 million of bonds on March 15.
