JPMorgan Asset Management and Invesco Asset Management say China’s cooling property market is an opportunity to boost dollar bond holdings as the government’s targeted stimulus benefits the largest developers.

Chinese real-estate companies accounted for six of the 10 best-performing Asian notes in the past three months, according to a Bank of America Merrill Lynch index. The yield on 2018 debt of China Overseas Land & Investments Ltd., the nation’s largest developer by market value, dropped to 3.35 percent last week, from a record 4.31 percent on Feb. 5, while that on similar-maturity bonds of China Vanke Co. fell to 3.95 percent, from an all-time high of 5.07 percent on March 20.

“We will pick the winners from these trends,” said Stephen Chang, head of Asian fixed income at JPMorgan Asset, which oversees $39 billion in emerging-market debt. “Although sales and prices are falling along with margins, we have identified the larger developers are gaining market share and executing well.”

Premier Li Keqiang has pledged to safeguard this year’s growth target of 7.5 percent, fueling bets the government will encourage increased lending to selected projects and relax restrictions in the real-estate market. Larger developers may benefit from industry consolidation as smaller builders face a funding squeeze with a record amount of property trusts maturing next year and prices falling in the most cities in two years.

Home prices declined in 35 of China’s 70 cities last month from April, the most since May 2012, official data showed June 18. In the financial center of Shanghai, prices decreased 0.3 percent, the first drop in two years, while they fell 0.2 percent in the southern business hub of Shenzhen.

“Softening prices are good because they imply there isn’t a bubble anymore,” said Ken Hu, Hong Kong-based chief investment officer of fixed income for Asia Pacific at Invesco, which manages $787 billion globally. “We pick developers with high turnover and those who tend to build smaller-sized flats. Profit margin isn’t that key to bondholders like us. Our approach is to buy on dips.”

Developers including Vanke that cut prices by 10 percent to 15 percent achieved good sales volume, Deutsche Bank AG analysts led by Hong Kong-based Tony Tsang wrote in a June 13 report. Vanke, headquartered in Shenzhen, recorded a 16.2 percent increase in sales value in the first five months of 2014 from a year earlier, it said in a June 3 statement to the Shenzhen stock exchange.

Larger industry players are able to tap overseas capital markets for funds. Sales of dollar bonds by Chinese companies totaled $91 billion in 2014, compared with $89 billion in the previous year, according to data compiled by Bloomberg.

Smaller builders, which rely on property trusts for financing, have to repay 203.5 billion yuan ($32.7 billion) in 2015, according to research firm Use Trust. That’s almost double the 109 billion yuan due this year. China’s banking regulator said on June 6 it will monitor developer finances, a sign of concern defaults may spread after the March collapse of Zhejiang Xingrun Real Estate Co., a builder south of Shanghai. (Bloomberg)