While investors can expect to see more default rates from Chinese credits, default from sector perspective has been more broad-based.
Up till 2016 and part of 2017, a lot of defaults were primarily from the old economy that is engineered in some ways and to some extent driven by supply side reforms and the deleveraging process.
Neeraj Seth, head of Asian credit at BlackRock, said the defaults in Chinese credits are broad-based this year compared to last four years.
‘We started to see some listed companies in the list of defaulted names and I do think that will continue,’ he said at a media briefing on Wednesday.
Defaults typically occurred in deleveraging and credit tightening conditions, which affect mainly the old economy industrial sectors where there is a lot of dependence on the short term funding.
Since its first default in 2014, there were close to 180 defaults in Chinese credits in markets with thousands of issuers, Seth said.
This year alone, China have had at least 22 defaults, Seth said, noting this number is relatively small when compared with the default rates in the global, Asian or emerging credit markets.
‘All these defaults are in some way helping in terms of proper allocation of capitals and the capital markets as well as proper pricing of risks,’ he said.
While investors can expect to see defaults that will try to reduce the moral hazards of the systems, Seth said he does not expect to see a risk of a systemic crisis coming out of these defaults going higher.
‘Overall, the market should be embracing these defaults rather than getting worried about it, as this is natural part of the credit cycle,’ he said.