NEW YORK (Reuters) – China’s real estate sector is likely to see “significant easing” in its policies, BNP Paribas Asset Management (OTC) said. It was coming months after it had started building a long position on the sector’s debt.

Jean Charles Sambor from BNP Paribas Asset management (BNPPAM) said that they believe the world is at a pivot point and are expecting some significant easing.

We are active in this sector, and are optimistic about it. This position has been built over the past few months.

Sambor was unable to discuss specific investments for companies, but only the sector as a whole.

After stricter funding rules in place for property development, China’s real estate sector was hit hard by debt. Many portfolio managers felt the pinch from China’s huge role in global economics.

The CSI China Mainland Real Estate Index plunged as low as 28% in 2017, before closing down at 15%. In 2021, stocks in China Evergrande (one of the most prominent developers going through a restructuring) are expected to drop 89%.

Graphic: China real estate sector stocks – https://graphics.reuters.com/CHINA-PROPERTY/STOCKS/lgpdwjyzbvo/chart.png

Evergrande is responsible for approximately $300 billion in liability, which includes $20 billion in international debts. Foreign bonds which were trading above 90c in some cases last fiscal year now trade at default level at below 20 cents per USD.

Sambor explained that “the property market had been in pressure since (the government) wanted deleverage, and to some degree they did it.” China is determined to ensure that no other sector of the industry is at risk.

International investors hope that state-owned companies (SOEs), will help with debt restructurings. However, others are concerned that Beijing could use limited returns to first pay local debt.

Sambor stated that a restructuring of the sector cannot be done by the government because the private sector is heavily involved in the real estate market.

Although SOEs make up a large part of the market, they aren’t dominant it. This makes it difficult for SOEs to lead restructuring. He said that strong private sector participation is essential.

Sambor explained that BNPPAM’s perspective on the realty sector is part a bigger bet on fixed-income returns within emerging market.

Sambor stated, “We believe it’s going be the year for the great normalization of Asia high yield with a special focus on China.” In 2022, EM fixed income performance will hinge on Asian high yield and China in particular.