Chinese Real Estate Stocks Soar on Beijing Stimulus, Despite Ongoing Debt Crisis | China

Chinese real estate stocks soared for a second day on Beijing’s leaders’ decision to throw a lifeline to the country’s struggling real estate sector amid mounting pressure at home and abroad.

Despite a downgrade in China’s third-largest property developer Sunac on Thursday, shares in the sector rose again in Hong Kong and on the mainland thanks to Vice Premier Liu He, China’s economic czar, announcing on Wednesday that the government was to cut risks in the industry.

In a sign of heightened concern within the Chinese Communist Party leadership about the real estate sector and the broader economy – best exemplified by the near collapse of giant developer Evergrande – Liu urged the rollout of pro-market policies to support the economy.

That sent the mainland Hang Seng property index up 14.8% at noon in Hong Kong on Thursday, compared with a 5.8% gain for the main Hang Seng index. The sub-index had already jumped 14.7% on Wednesday.

Tech stocks also rebounded after months of pressure. Tech tracker Hang Seng rose more than 7% after an astonishing 22% gain on Wednesday, although it still halved in value from its highs of last year.

However, some investors fear the real estate rally will not be sustainable as it comes amid lingering problems for China’s biggest developers.

Sunac China, the country’s third-biggest property developer by sales, was downgraded to a B- credit rating by S&P on Thursday – making it harder to borrow money – due to fears it will not be able to meet its huge debt repayments of nearly $4 billion due this year.

S&P analysts downgraded Sunac China’s liquidity position from ‘less than adequate’ to ‘weak’, and warned that ratings will be reviewed as soon as ‘we have greater visibility on refinancing plans. of Sunac.

They wrote: “Sunac China Holdings Ltd faces concentrated debt repayment over the next six to 12 months, resulting in considerable refinancing risk and low liquidity. Financial market confidence is waning rapidly.

Despite this dismal record, shares of Sunac were up 60% in Hong Kong on Thursday afternoon. Other major developers Country Garden and Evergrande were both more than 20% off.

The real estate sector, a key driver of growth, struggled for months as Beijing’s campaign to reduce high debt levels sparked a liquidity crunch among some big developers, leading to bond defaults and projects abandoned.

After Liu’s comment, the banking and insurance regulator also said on Wednesday that it would seek to stabilize land and house prices, transform the real estate sector and encourage mergers and acquisition lending so that developers buy distressed assets.
The finance ministry later said that China was putting a trial property tax project this year on ice, the official Xinhua news agency reported.

Bill Bishop, China watcher and author of the Sinocism newsletter, said Thursday that Liu’s decision to try to shore up the markets showed how worried Beijing had become.

“The reading shows how worried policymakers have become about markets, housing and the economy, but I’d be cautious in assuming messages from Liu He and other financial regulators mean the days difficult are over,” he wrote.

“They’re certainly trying to send a signal that they don’t want the markets to go any further, but isn’t it clear that this is a real change or rather a calibration to stabilize the markets? things.”

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John A. Bogar