China’s efforts to head off a housing market crisis are giving property stocks and bonds a new lease of life, just as global fund managers are singling out the sector as potentially the biggest credit risk event to undermine global capital markets.
The Hang Seng Mainland Properties Index, a gauge tracking 10 home builders, gained 0.1 per cent on Wednesday. The bounce added to a 5 per cent rally this month, clawing back some of the 13 per cent slump in August. Country Garden Holdings jumped 2.8 per cent to HK$1.10 while Agile Group surged 5.41 per cent to HK$1.17 and China Resources Land gained 0.9 per cent to HK$33.75.
An ICE BofA index tracking US$18.4 billion worth of Chinese junk-rated debt, mostly property bonds, has returned 3.9 per cent this month, as Country Garden took steps to avert its first-ever default.
“The biggest factor for the rebound is the recent introduction of favourable policies,” said Kenny Ng, an equity strategist at Everbright Securities in Hong Kong. “The market envisions that there would be a chance of improvement in the property market, which brings support to stock prices.”
China is seeking to arrest a loss of confidence in the property market, after the “three red lines” policy introduced in August 2020 to clamp down on excessive debt helped trigger a bear market in local stocks. Besides state-driven measures to ease financing and down-payment rules, local governments in top-tier cities have widened the pool of “first-time” homebuyers to qualify them for cheaper home loans.
China’s largest state-controlled banks have separately adjusted their mortgage rates, with cuts tied to market conditions and floor rates set for each city they cover. The new rates will be effective from September 25. Other provincial capitals have also relaxed home purchase restrictions.
Debt-ridden Country Garden gets creditor approval to delay 6 bond repayments
Debt-ridden Country Garden gets creditor approval to delay 6 bond repayments
Still, the debt crisis at Country Garden, once China’s biggest home builder, has rankled global investors in recent weeks as a slump in home sales has persisted, hurting its cash flow. The developer avoided default a week ago and has reached out to more bondholders to delay repayment deadlines. It had 108 billion yuan (US$14.8 billion) of debt coming due within 12 months as of June 30, according to its report to shareholders last month.
Advertisement
China’s property market has become the most likely source for a systemic global credit event, Bank of America said in a report on September 12, based on a survey of 222 fund managers overseeing US$616 billion of assets. They previously ranked the US or EU commercial real estate market as their biggest worry.
01:55
Malaysia’s China-linked multibillion-dollar ghost town project stalled by Covid and capital curbs
Malaysia’s China-linked multibillion-dollar ghost town project stalled by Covid and capital curbs
They also perceived China’s economic outlook as bleak, with growth expectations slumping to “lockdown lows”. No one expected faster economic expansion ahead, according to the latest survey, versus 78 per cent in the February survey, after China discarded its zero-Covid policy.
Only 12 per cent of the money managers expected a fiscal stimulus “bazooka”, the US bank said. Some 55 per cent said policy actions would be limited to fine-tuning the property market, while 15 per cent said there would not be any meaningful stimulus in store.
“The recent rebound does not necessarily mean investors have become optimistic about China’s property sector,” Ng of Everbright said. “There are small signs of recovery, but whether it can be sustained remains to be seen. Investors are chasing a rebound on a relatively short-term basis.”
Advertisement
The news is published by EMEA Tribune & SCMP
