By Lewis Jackson

SYDNEY (Reuters) - Australia's A$2.4 trillion ($1.54 trillion) pension sector grew its investments in local and foreign debt by more than A$20 billion over the past year as higher yields burnished an asset class overlooked in a country where equities traditionally rule.

The two largest pension funds grew fixed income investments in their primary vehicles, holding bulk of the pensions, in the last financial year. For the A$300 billion AustralianSuper, the country's largest fund, its fixed income allocation hit the highest level since at least 2013.

AustralianSuper told Reuters it had doubled debt assets to A$40 billion over the past year and added at least three new fixed income portfolio managers to its London office.

"We had a very low allocation to fixed interest for much of the last two or three years and are now building that back up again as rates start to normalise," said Katie Dean, head of fixed income, currency and cash at AustralianSuper.

Australian Retirement Trust, which manages A$240 billion, Sio lifted its fixed income allocation to 13.7% from 12.5%, according to filings.

The rotation into bonds is a step change for a sector long underweight the asset class by global standards. Norway's $1.4 trillion sovereign wealth fund and the $450 billion California public employees pension fund CalPERS hold about a quarter of assets in fixed income, for instance.

Australian investors have historically preferred stocks to bonds, in part due to dividend friendly tax laws since the 1980s that enhance income from stocks.

The decline in global yields after the 2008 financial crisis also sapped appetite for debt.

Australian government 10-year bond yields had dropped to around 1% in 2020 before the pandemic, from 6% in 2007. They are now above 4%.

"There's a huge market bias in Australia... it's ridiculous for an OECD country," said Amy Xie Patrick, head of income strategies at Pendal Group, which manages pension money.

Jay Sivapalan, head of Australian Fixed Interest at Janus Henderson, which manages money for local pension funds, said their past investments were mostly in private debt markets where yields come with a liquidity premium.

But the spectacular rise in benchmark sovereign yields since late 2020 is luring funds back to public markets, said Sivapalan.

Even funds reluctant to permanently change allocations to debt are trading bonds. Fixed income has been Aware Super's most actively traded asset class over the past few years, says its Head of Investment Strategy Michael Winchester.

The A$160 billion fund has roughly a tenth of its primary vehicle invested in fixed interest, according to its website.

In another sign of the sector's tentative embrace of fixed income, the country's fifth largest fund, the A$100 billion Hostplus, added debt in fiscal 2022 to its primary vehicle for the first time in five years, but the allocation was only 3%.

"Within the last year to 18 months, they've [the sector] been trying to get to some sort of neutral," said Patrick. "They're not necessarily going over their skis on fixed income."

($1 = 1.5584 Australian dollars)

SHANGHAI/SINGAPORE (Reuters) -China cut its one-year benchmark lending rate on Monday as authorities seek to ramp up efforts to stimulate credit demand, but surprised markets by keeping the five-year rate unchanged amid broader concerns about a rapidly weakening currency.

The recovery in the world's second-largest economy has lost steam due to a worsening property slump, weak consumer spending and tumbling credit growth, adding to the case for authorities to release more policy stimulus.

However, downward pressure on the yuan means Beijing has limited room for deeper monetary easing, analysts say, as a further widening of China's yield differentials with other major economies could trigger yuan selloffs and capital flight.

The one-year loan prime rate (LPR) was lowered by 10 basis points to 3.45% from 3.55% previously, while the five-year LPR was left at 4.20%.

In a Reuters poll of 35 market watchers, all participants predicted cuts to both rates. The 10 bp cut in the one-year rate was smaller than the 15 bp cut expected by most poll respondents.

"Probably China limited the size and scope of rate cuts because they are concerned about downward pressure on the yuan," said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui (NYSE:SMFG) DS Asset Management.

"Chinese authorities care about currency market stability."

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. China cut both LPRs in June to boost the economy.

The onshore yuan eased in early trade to 7.3078 per dollar, compared with the previous close of 7.2855, while benchmark Shanghai Composite index and the blue-chip CSI 300 index also declined.

The yuan has lost nearly 6% against the dollar so far this year to become one of the worst performing Asian currencies.

The reduction in the one-year LPR came after the People's Bank of China (PBOC) unexpectedly lowered its medium-term policy rate last week.

The medium-term lending facility (MLF) rate serves as a guide to the LPR and is widely read by markets as a precursor to future changes to the lending benchmarks.

China's central bank has also pledged to keep liquidity reasonably ample and its policy "precise and forceful" to support the economic recovery, amid rising headwinds, according to its second-quarter monetary policy implementation report.

But the steady five-year tenor caught many traders and analysts off the guard, with some expecting the troubled property sector and rising default risks at some developers would have led to deeper cuts to the benchmarks.

"We interpret the status quo of five-year LPR was a signal that the Chinese banks are reluctant to cut rates at the expense of rate differential margin," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

"It flagged a problem on the effectiveness of PBOC's policy guidance pass-through into the market, and the Chinese authorities may be lacking effective tools to stimulate the property sector and economy via monetary easing."

Cheung added that the unexpected rate outcome should be "negative to China growth outlook and the yuan exchange rate".

The central bank said it will optimise credit policies for the property sector, while co-ordinating financial support to resolve local government debt problems, it said in a statement on Sunday.

By Jonathan Allen and Brendan O'Brien

KIHEI, Hawaii (Reuters) - U.S. Federal Emergency Management Agency Director Deanne Criswell said on Sunday that President Joe Biden will reassure the people of Lahaina that they will be in control of how they rebuild when he visits the razed Maui community on Monday.

The president along with the first lady plan to visit the historic Hawaiian town and meet with first responders, local officials and victims and get a firsthand look at the widespread devastation, Criswell said on CNN's "State Of The Union" show.

"He's going to be able to reassure the people of Maui that the federal government is there to support them, but we're doing it in a way that's going to allow them to rebuild the way they want to rebuild," she said.

The wildfires incinerated the town of Lahaina on Aug. 8, destroying 2,200 homes and businesses and leaving hundreds unaccounted for. As of Sunday morning, 114 people were confirmed dead.

In a separate interview on ABC's "This Week" program on Sunday, Criswell said search efforts in Lahaina town are 78% complete and that victims have received more than $8 million in federal assistance.

Biden has faced criticism from Republicans for not speaking publicly about the tragedy until five days after it occurred. Criswell said she was in communication in the days that followed the wildfires, helping Biden understand the magnitude of the situation and what resources were needed.

"He directed me to make sure that we are doing everything we can to help the people of Maui and to bring in all of the federal resources to help with this immediate response," she said.

The cause of the fires has not yet been determined pending the results of an official investigation.

In other developments:

- Details have begun to emerge about the lives of the deceased. Forensic pathologists, X-ray technicians, fingerprint experts and forensic dentists are working 12 hours a day to complete the grim task of identifying those lost.

- Getting kids back to school poses challenges as hundreds have already enrolled in schools in areas outside the burn zone. Some will be too traumatized to attend when their schools in Lahaina reopen while some parents will opt to move rather than rebuild.

Wherever they attend, school can be a step toward normalcy for survivors in a community grappling with how to pick up lives while carrying the burden of mourning.

- Biden on Friday authorized additional federal support for Hawaii, the White House said.

Investing.com -- Federal Reserve officials gather for the central bank’s annual get-together at Jackson Hole, Wyoming with a speech by Federal Reserve Chairman Jerome Powell the main highlight. The deepening crisis in China’s property sector will remain to the fore, while PMI data out of the Eurozone and the UK will likely add to the gloom. Here’s what you need to know to start your week.

Jackson Hole

Investors will be looking to a speech by Fed Chair Jerome Powell for clarity on the economic outlook and the future path of interest rates.

Powell’s speech, set for 10:05 am ET on Friday, comes after last week’s minutes of the central bank’s July meeting showed that most policymakers are still concerned about upside risks to inflation, indicating that further rate hikes cannot be ruled out.

Investors will be focusing on whether the Fed head believes more policy tightening will be needed to bring down inflation, or if enough progress has been made to keep rates on hold. Market watchers will also be on the lookout for any clues on whether the Fed is weighing the prospect of rate cuts in 2024.

Traders see an 89% chance of the Fed holding rates at current levels at its September meeting, according to Investing.com's fed rate monitor tool.

Equity markets

With no major catalysts driving markets, investors will be focusing on Powell's speech on Friday for clues on the interest rate outlook as well as earnings from chip designer Nvidia (NASDAQ:NVDA), which is due to report on Wednesday.

Nvidia has had a stunning rally on expected growth in artificial intelligence, nearly tripling in value year-to-date.

Wall Street’s three main indices ended lower last week after a spate of strong economic data caused investors to dial back expectations of rate cuts and drove up government bond yields.

Anxiety over China’s worsening property crisis and its impact on the country’s weakening economy also weighed on market sentiment after embattled developer China Evergrande Group (HK:3333) filed for U.S. bankruptcy protection on Thursday.

China woes

Expectations are mounting that China could make a cut to the loan prime rate - meaning lower mortgage rates - as soon as Monday, amid fears that the unprecedented debt crisis in the country's property sector, which accounts for roughly a quarter of the economy, is starting to spill over into its financial system.

China unexpectedly lowered several key interest rates last week, but analysts say moves so far have been too little, too late, with much more forceful measures needed to stem the economy's downward spiral.

The deepening crisis in the property sector along with worries about contagion risks could have a destabilizing impact on the world’s second largest economy, which has already weakened amid tepid domestic and foreign demand, faltering factory activity and rising unemployment.

PMI data

The Eurozone and the UK are to release PMI data on Wednesday, which could provide insights into whether the European Central Bank will hike interest rates again in September and if the Bank of England opts for a big rate increase.

Eurozone and UK PMIs have been sliding in recent months, amid stagnation in the service sector coupled with a contraction in the manufacturing activity.

ECB President Christine Lagarde is to speak at Jackson Hole on Friday with investors looking for clues on the central bank’s next move in September.

In July, Lagarde said the ECB would keep an "open mind" when it came to future rate decisions, adding that policymakers were "moving to a stage where we are going to be data dependent".

Oil prices

Oil prices posted their first weekly loss since June last week as growing concerns over the global demand outlook offset expectations of tightening supply on the back of output cuts by OPEC+ linchpins Saudi Arabia and Russia.

Oil prices were pressured lower as the worsening property crisis in China weighed on risk appetite. Meanwhile, Wednesday’s Fed minutes boosted Treasury yields and propelled the dollar to a fifth week of gains, weighing on the allure of commodities for overseas buyers.

"Concerns for investors remain focused on the tension between slowing global growth and still-tight global supplies," Rob Haworth, senior portfolio manager at U.S. Bank Asset Management told Reuters.

"Prices are likely to remain range-bound for now," Haworth added, noting that demand is in question for investors worried by the weak data from China.

--Reuters contributed to this report

By Anna-Catherine Brigida

BUENOS AIRES (Reuters) - When Ernesto Acuna, a convenience store owner in Buenos Aires, received the new price list this week from his supplier of the snacks, condiments, sodas and ice creams he sells, he was shocked to find costs on some had risen 60% since late July.

The price list, updated after a primary election shock led to a sharp devaluation of the peso and interest rate hike on Monday, underscores the scale of Argentina's challenge to avoid inflation, already at 113%, climbing faster.

"An ice cream for someone who comes to the store that was 1,000 pesos before, today is 2,000," said Acuna, citing an increase of 35% and then 50% two weeks later. He added that owners like him of 'kiosko' mini-stores didn't know how to respond.

"We kiosko owners don't know if we should increase prices each day, or by how much."

The price lists from a major national supplier, analyzed by Reuters, showed an average hike of 18% between July 26 and Aug. 15. Many were grouped around 25%, while some prices were left unchanged. Ice creams and desserts saw the steepest jumps, although there was variance among different products.

The analysis suggests that wholesalers are rapidly moving to raise prices after market volatility this week, which will feed into higher inflation in August as the country battles to avoid the hyperinflation it suffered in the late 1980s.

The price list offers a window into how these market shocks are passed on to small business owners, and eventually customers. Acuna said products that are imported, face scarcities, or are seasonal see the highest increases.

Businesses selling everything from cleaning products to car parts have rushed to adapt to the higher wholesale prices this week, suspending special offers and sometimes sales altogether.

Juan Pablo Spagnolo, 46, another convenience store owner, said after initial increases of 40%-50% on Monday and Tuesday compared to the previous month, by Wednesday he had received lists with more "reasonable" increases, ranging from 15% to 25%.

"I'm telling you the reality of today, but the reality of next Monday is completely different," Spagnolo said.

Even business owners with decades of experience, such as Acuna, are struggling to adapt to the triple-digit inflation, which analysts forecast will rise further in the lead-up to the Oct. 22 general election, where radical libertarian economist Javier Milei has taken pole position.

Since March, business owners have received updated price lists from their suppliers twice a month, double the frequency of a year ago, said Acuna. Any drastic news, such as Monday's devaluation, can lead to an additional list, he said. The price hikes are much steeper than past years, at least 10% per month, but with some products seeing much higher rises.

Owners then decide how to pass these price hikes on to customers, treading a fine line between maintaining profitability and ensuring a steady clientele, according to Acuna. Some implement the price hikes gradually so as not to scare away customers. Others decide to accept losses on some products in favor of keeping loyal customers.

"You keep trying to buy cheaper, look for a good price, run promotions," Acuna said. "You keep trying to keep people coming to your kiosko, to choose you. There's no other option."

Maria Leguizamon, a 48-year-old apartment manager and frequent customer at Acuna's store, said she will have to trim spending after this week's price increases – buying less meat and fewer treats.

"Prices have gone through the roof, in every way," Leguizamon said, adding that she didn't blame the store owners and small businesses who were just trying to survive. "It's madness what we're living through."

By Kevin Buckland

TOKYO (Reuters) - The dollar headed for a fifth winning week versus major peers, the longest streak for 15 months, as a resilient U.S. economy argued for high rates for longer while China's floundering recovery spurred demand for the safety of the U.S. currency.

On Friday, however, the dollar trimmed some of those gains as its rally against the yen kept traders on edge against the risk of intervention, and the yuan edged up after the People's Bank of China set a much-stronger-than-expected daily fixing.

The U.S. dollar index - which measures the currency against six developed-market rivals, including the yen and euro - eased 0.14% to 103.26 in the Asian morning, after touching a two-month high at 103.59 overnight.

For the week, it is set to gain 0.39%.

On Thursday, minutes from the Federal Reserve's last meeting showed most members of the rate-setting committee continued to see "significant upside risks to inflation," suggesting a bias toward further rate increases.

Strong economic data this week, particularly retail sales, had already bolstered the case for additional tightening.

That all helped push 10-year Treasury yields to the highest since October at 4.328% on Thursday.

"The market wants the Fed to go on hold, but the data just isn't supporting that," said Tony Sycamore, a markets analyst at IG.

"The risk aversion, the higher yields, the resilient economic data ... all of those things have played out to perfection for the U.S. dollar."

Some selling to lock in profit from the dollar's rally makes sense into the weekend, Sycamore added, but a break above 103.70 next week looks likely, opening the way for tests of the May peak at 104.70, and then 105.88.

Against the yen, the dollar eased 0.22% to 145.515 on Friday, after reaching a nine-month peak of 146.40 overnight.

In autumn of last year, the dollar's surge beyond 145 triggered the first yen buying intervention from Japanese authorities in a generation.

The euro rose 0.2% to $1.0892, rebounding from Thursday's six-week low of $1.08565.

Against the yuan, the dollar edged 0.11% lower to 7.2895 in offshore trading, with the Chinese currency garnering support from the central bank's setting of the official mid-point at 7.2006, more than 1,000 pips stronger than Reuters estimate.

The Chinese currency plumbed a nine-month trough of 7.3490 on Thursday in offshore markets.

China's economic troubles have deepened, with property developer China Evergrande (HK:3333) seeking Chapter 15 protection in a U.S. bankruptcy court.

Beijing has so far disappointed with stimulus, even as each recent data release has painted an increasingly grim picture of the economic outlook.

The Australian dollar, which often trades as a proxy for China and has tended to track the yuan in recent days, rose 0.25% to $0.6418, continuing its rebound from Thursday's nine-month low of $0.6365.

Meanwhile, the world's biggest cryptocurrency, bitcoin, languished near a two-month low following a more than 8.5% plunge to a low of $26,266 on Thursday. It last stood at $26,609.

"There comes a point when it just couldn't ignore the rise in (U.S. Treasury) yields any longer," said IG's Sycamore, who sees the potential for a decline to $24,500.

"The question becomes whether you want your assets in a speculative section of the market when you're in the middle of a bond market rout."

By Stella Qiu

SYDNEY (Reuters) - Asian markets were trying to find a firmer footing on Friday after a rough week, hammered by concerns about China's ailing economy and fears of U.S. rates staying higher for longer as long-term bond yields surged.

MSCI's broadest index of Asia-Pacific shares outside Japan were up 0.1% after hitting a nine-month low the session before. It was, however, headed for a weekly loss of 2.8%, the third straight week of declines.

Japan's Nikkei lost 0.4% and was down 3% on the week.

Data early on Friday showed Japan's core inflation slowed in July, a result that is likely to support market wagers that the Bank of Japan is in no hurry to phase out monetary easing anytime soon.

China's blue-chips rebounded 0.2%, while the Hong Kong's Hang Seng Index fell 0.3%. Chinese property giants gained 0.3%, pulling away from a nine-month low hit just a session ago.

Adding to concerns of a deepening crisis in China's property sector, China Evergrande, one of the country's biggest real estate developers, on Thursday filed for protection from creditors in a U.S. bankruptcy court.

China stocks have shed 10% from their highs in January, as dismal economic data laid bare the stuttering post-pandemic recovery, with investors remaining unimpressed with just piecemeal support measures from policymakers.

"At the start of the year China's economy was powering ahead. But the picture has gradually worsened since, and now looks quite bleak," said Jonas Goltermann, deputy chief markets economist at Capital Economics.

"While it's hard to see a catalyst for a lasting turnaround in China's equity market, a lot of bad news is already discounted in it...Our central scenario remains that they make little-to-no gains rather than crashing."

Elsewhere, Treasuries rallied a little after being heavily sold off for the past five weeks. Ten-year yields eased 5 basis points to 4.2564% in Asia, after touching a 10-month top of 4.3280% on Thursday.

30-year yields also fell 4 basis points to 4.3684% and off from a 12-year high of 4.426% hit overnight.

A strong run of U.S. economic data, including a fall in weekly jobless claims on Thursday, suggested the world's largest economy is not slowing as desired in the face of high borrowing costs, prompting traders to scale back rate cuts bets next year.

"The market has downsized the extent of future cuts as the economy is just not lying down," Padhraic Garvey, regional head of research, Americas, at ING. "Confidence may be down, but the U.S. economy continues to spend and make things practically as normal."

"Importantly, upward pressure on market rates has been in longer tenors, not shorter ones. The shorter tenors are standing pat as the Fed is likely done, and that is coming from the significant easing in inflation data."

The Atlanta Federal Reserve's GDPNow forecast model suggested the U.S. economy is likely to grow at a 5.8% annualised rate in the third quarter, up from previous forecast of 5%.

In currency markets, the dollar lost some of its shine on Friday, but still managed to hold recent gains after hitting a six-week top.

The Japanese yen regained posture, up 0.3% to 145.35 per dollar, having been hammered this week to a nine-month low of 146.56 per dollar as yield differentials between U.S. and Japan widened.

It, however, still neared levels that sparked an intervention by Japanese authorities late last year.

The euro wallowed near its five-week low at $1.0876, down 0.6% for the week, while the risk sensitive Australian dollar broke a key support level overnight and was last at $0.6417.

Elsewhere, oil prices were marginally higher. Brent crude futures rose 0.1% at $84.24 per barrel and U.S. West Texas Intermediate crude futures also increased 0.3% to $80.64.

The gold price was slightly higher at $1,893.6 per ounce.

By Douglas Gillison

(Reuters) - Wall Street's top regulator is set next week to adopt new transparency rules for the $20-trillion private investment fund industry, according to an official notice, acting on a proposal that has drawn sharp industry objections.

The five-member U.S. Securities and Exchange Commission is also due to vote on Aug. 23 on a proposal, initially unveiled in 2015, that would require more broker-dealers to register with the Financial Industry Regulatory Authority (FINRA).

In early 2022, the SEC proposed a set of changes for private fund advisers that would, among other things, require them to produce quarterly statements on performance and fees and submit to annual audits. They would also be prohibited from charging fees for services never rendered, among other provisions.

The final version of the proposal, which has not yet been released, may have changed after an extended notice-and-comment period. Democrats hold the majority on the commission, meaning the final version is virtually assured to pass.

Lawmakers and regulators have sought to increase oversight of the private asset management sector, citing risks to financial stability and insufficient investor protections in an industry that according to SEC figures has more than doubled in size over the last decade.

Financial-reform advocates and Democratic lawmakers have supported the changes, saying they would help protect millions of retirement savers, much of whose money is parked in privately managed funds, and the retail investors increasingly drawn to private credit funds.

Industry organizations say the SEC lacks the legal authority to adopt the rule and point to a 2022 Supreme Court ruling which sharply curtailed the federal government's power to issue climate regulations.

"Congress did not intend to give the Commission unbounded power to regulate private fund advisers or to limit the ability of investors to negotiate for terms that they and advisers believe are prudent," the Securities Industry and Financial Markets Association said in a letter.

The second proposal under consideration next week could, if adopted, require dozens of broker-dealers to register with FINRA. The SEC had originally issued the proposal in 2015 under then-Chair Mary Jo White.

Under current rules, some broker-dealers who perform proprietary trades on exchanges of which they aren't members need not join FINRA. However SEC officials say this exemption is outdated, given the growth of securities markets, and unduly shields some investment firms from oversight.

The proposal would now require FINRA membership for such broker-dealers unless they are members of national securities exchanges and carry no customer accounts.

By Michael S. Derby

NEW YORK (Reuters) - Ahead of the July Federal Reserve meeting, banks and money managers projected the hike in interest rates they expected for that gathering would be the last the central bank delivered, according to New York Federal Reserve surveys released Thursday.

At the last Federal Open Market Committee, officials raised their target rate a quarter percentage point to between 5.25% and 5.50%, which is what respondents to the surveys of large banks and money managers had expected.

The Fed next meets on Sept. 19-20, and futures markets currently expect no increase for that gathering.

Primary dealers also thought ahead of the July 25-26 FOMC meeting that the Fed would be able to cut rates at the April 2024 meeting. Meanwhile, the Fed’s survey of market participants, which are largely money managers, saw rate cuts starting sooner, with a quarter percentage point easing at the March 2024 gathering.

By the final quarter of next year, primary dealers told the New York Fed they expect a 4% federal funds rate, while the market participant survey predicted 3.88%.

Many expect the Fed to ease rates next year to keep the overall potency of monetary policy stable at a time when inflation is expected to further cool.

The primary dealer survey showed that the banks projected an end to the Fed’s runoff of Treasury securities by the third quarter of next year. The process of shedding mortgage-backed securities could extend beyond 2025, which was as far as the banks were polled.

The big banks expect the total runoff of the Fed’s balance sheet, which is complementary to its interest rate policy, to end during the second or third quarter of next year when holdings stand at $6.75 trillion. Fed holdings peaked in the summer of 2022 at just shy of $9 trillion and currently stand at $8.3 trillion.

The New York Fed survey of banks and market participants are conducted before every FOMC meeting to give officials a sense of how their view aligns with the financial sector, which the central bank relies upon to transmit changes in monetary policy to the broader economy.

On Wednesday, Fed officials released the meeting minutes from the July FOMC meeting that showed some division over the need for their last rate rise. It also showed uncertainty over the need for additional actions now that inflation pressures are showing signs of abating. That said, officials remained worried about inflation and appear ready to act again should they deem it necessary.

Investing.com -- Fitch Ratings may consider rethinking China’s A+ sovereign credit rating amid growing economic headwinds to the Asian giant, especially if corporate debt conditions worsen in the country. 

James McCormack, managing director, global head of sovereign ratings at Fitch said in an interview with Bloomberg TV on Wednesday that while current government debt levels were acceptable, any deterioration in corporate debt conditions could present a risk, especially if the government expands its balance sheet to support corporates.

“If some of these contingent liabilities in other sectors- nonfinancial corporate sectors, in the banks themselves, become real liabilities for the government, if it does really extend its balance sheet to support the economy… then we might think again, because the debt-to-GDP ratio is still a little bit on the high side for single A credit,” McCormack told Bloomberg TV. 

But McCormack said that there was little evidence so far that the government planned to expand its balance sheet to that level of policy support, and that Fitch also did not anticipate such a move from authorities in the near-term. 

He noted that government debt still remained high, with Fitch estimates pegging debt levels at 60% of overall gross domestic product. Fitch had in December affirmed China's rating at A+, and flagged a stable outlook for the country as it had then begun winding down its strict zero-COVID policy.

McCormack’s comments come amid signs of a brewing debt crisis in China’s property sector, as Country Garden Holdings (HK:2007) - the country’s biggest real estate firm - flagged a massive first-half loss, and suspended trading in 11 offshore bonds on potential difficulties in meeting its debt obligations.

The firm also missed payments on some coupons earlier this month, fueling fears of a broader contagion in Chinese debt markets, stemming from a potential default. 

While Beijing said that ructions stemming from Country Garden were expected to be temporary, Fitch’s McCormack said that the property sector was undergoing a structural change.

He said that the government was attempting to reduce the Chinese economy’s dependence on real estate, and was unlikely to extend broader policy support for the sector. 

Still, a cooling property sector saw Chinese economic growth slow sharply in the second quarter of 2023. Growth is also expected to remain largely under pressure as the sector faces continued headwinds from slowing sales and waning private investment. The property sector accounts for a fourth of the Chinese economy, and is the country's biggest economic driver.

Fitch had recently downgraded the U.S. sovereign rating to AA+ from AAA, citing increased concerns over fiscal spending and disruptions to policymaking by persistent clashes between Democrats and Republicans.