China Stimulus-Led Property Rally Meets Skeptical Investors
Published 21 November 2023, 13:28:25.546 GMT
By Bloomberg News
(Bloomberg) -- The gains in Chinese developers’ bonds and stocks Tuesday are at risk of becoming yet another false dawn as investors seem unconvinced that Beijing’s latest funding plan for 50 real estate firms can help turnaround the embattled property sector.
The country’s property crisis has been weighing on the economy for months, and some investors are doubtful about a speedy resolution as the measure stops short of being a directive to banks to extend loans to developers.
While the measure may help to boost confidence, there’s concern that the so-called white list of developers eligible for a range of financing would mainly comprise state-owned firms. That means distressed companies most in need of the support would be excluded.
“The white list itself is unlikely to lead to concrete improvements in developers’ financing unless there are more tangible actions,” said Leonard Law, senior credit analyst with Lucror Analytics Pte. Also, “financial institutions have their own considerations and the support often comes with strings attached.”
Any changes to rules on working capital loan, operating or development loan will take time while the list focused on 50 developers might “potentially worsen the financing difficulty of other names not on the list,” Citigroup Inc. analysts including Griffin Chan wrote in a note. The measure will provide “marginal support to property names in need,” they said.
China investors, fatigued by actions that have failed to reverse the sector’s slide, have tended to sell into rebounds. Stock rallies have lasted an average of only two days with a 4% relative return since last year, according to JPMorgan Chase & Co. analyst Karl Chan.
Tuesday’s advance also lacked lasting power. A Bloomberg gauge of China developer stocks pared a gain of 7.6% to about half at the close, while a 27% jump in Sunac China Holdings Ltd. — the first major Chinese builder to reach a restructuring agreement — trimmed gains to 12%. The Hang Seng Index, which was earlier lifted by the news, reversed gains of as much as 1.6% to end 0.3% lower.
The mood soured in the afternoon as traders digested the measure along with the news that China’s central bank has encouraged banks to cap the amount of new loans they issue in early 2024 and shift some forward to this year. This implies that the regulators would be more comfortable with slower growth and refrain from property stimulus.
Wanda Properties’s proposed 11-month extension of a 7.25% dollar bond to Dec. 2024 also dampened sentiment. That note dropped 11.4 cents on the dollar to 51.3 cents in the afternoon, set for record decline. The company was once seen as among the few high-quality Chinese issuers in the junk-bond market because it focuses on commercial real estate and asset-light property management business.
The sector’s woes go beyond access to liquidity, and questions remain over whether there are any tools left — and whether they will be deployed — to stimulate demand, analysts said. Drying up of sales and a deepening contraction in property investment are also weighing on home prices, which fell the most in eight years in October.
“While the government attitude has turned to more active support, the question now is whether it is enough to stabilize the industry given housing demand is still weak,” said Ting Meng, senior credit strategist at Australia & New Zealand Banking Group. The bank remain cautious on most private developers, she said.