Credit default swap trading \'no threat to property market\'_NEWS

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Credit default swap trading' no threat to property market'

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日期: 2017-08-14
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Trading in credit default swaps is unlikely to trigger a substantial correction in China's propertymarket, economists said on Tuesday, saying that concerns that speculators would use creditdefault to short the market were unfounded.
The National Association of Financial Market Institutional Investors, a unit under the People'sBank of China, has approved trading in credit default swaps, a financial swap agreement thatallows buyers of CDS to be compensated by sellers in the event of a loan default.
Industry analysts said that the move underscored the government's intention to increase the useof market forces in addressing China's debt problem instead of resorting to a government bailoutwhen credit defaults take place.
But the approval of credit default swap trading has generated anxiety in the market, withconcerns that the controversial financial tool could be used by speculators to short the country'sred-hot property market.
Credit default swaps were blamed for igniting the meltdown of the capital market in the UnitedStates during the financial crisis in 2008.
Strong mortgage demand has driven up Chinese household borrowing, which accounted forabout 70 percent of all new loans extended by Chinese banks in August.
Total new loans grew to 948.7 billion yuan ($142.27 billion) in that month, more than double theamount in the previous month, according to official data.
Zhao Yang, chief China economist at Nomura Securities, said that the trading in credit defaultswaps was unlikely to cause great volatility in the housing market, which is more sensitive tofactors such as mortgage policies and land supply.
"The market has read too much into the trading of credit default swaps. It is a much neededfinancial tool that could help improve China's credit market by allowing market forces to havegreater say in the pricing of corporate debt," Zhao said.
Most economists believe that the trading in credit default swaps will meet the rising demand byinvestors in China to hedge credit risks amid the growing likelihood of more missed paymentsand credit defaults by companies amid the economic slowdown.
"At this stage, credit default swaps can actually help banks manage credit risks, and potentiallyincrease banks' appetite to lend because credit risks are perceived to be lower with thisinstrument," said Hong Hao, chief strategist at BOCOM International Holdings in Hong Kong.
Wang Han, an analyst at Industrial Securities Co Ltd, said trading in credit default swaps couldhelp provide more liquidity.

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