China property stocks, bonds rally post report of $85 bn support from banks

Chinese developer stocks and bonds rallied after Bloomberg reported that the nation’s financial regulators told the biggest state-owned banks to provide financing worth at least $85 billion to the battered property sector.
 

A Bloomberg Intelligence gauge of real estate stocks jumped as much as 2.6% on Monday. CIFI Holdings Group Co., KWG Group Holdings Ltd. and Agile Group Holdings Ltd. were the top gainers in Hong Kong, up more than 10% each. Meanwhile, higher-rated developer dollar bonds rebounded, with some notes snapping a two-week losing streak.  

The People’s Bank of China and the China Banking and Insurance Regulatory Commission recently told the six largest banks to each offer at least 100 billion yuan ($14 billion) of financing support including mortgages, loans to developers and purchases of their bonds, people familiar with the matter told Bloomberg News. Mainland markets are closed this week for a holiday. 

The move would be the latest in a series of actions intended to arrest a property slump that’s been weighing on the world’s second-largest economy for more than a year. Chinese policymakers have already encouraged local governments to ease curbs on homebuying and asked lenders to meet reasonable financing needs of developers.

“We believe this adds weight to the long list of ongoing easing measures for the property sector, and suggests the worst time of property tightening is likely behind us,” Citigroup analysts including Judy Zhang wrote in a note.

Among other measures, China also unveiled a rare tax incentive for homebuyers on Friday, while the nation’s central bank lowered interest rates on housing provident fund loans for first-home buyers. 

Still, some investors remained wary as to the effectiveness of the latest news. Calls for industry support have gathered pace in recent weeks ahead of the twice-a-decade Communist Party congress later this month. 

Here is what other analysts are saying: 

Chang Shu, chief Asia economist for Bloomberg Economics:

• China’s latest measures aimed at stoking housing demand will reduce the tail risk of a market crash but doesn’t alter the “underlying misalignment between supply and demand that’s driving the property rout”
• While measures reinforce that policy is turning more supportive, “developers remain distressed with broken business models.
• The latest policies won’t change that, nor stop the long-term decline in housing demand”

Steven Leung, executive director at UOB Kay Hian Ltd:

• “The market is focused on the Party Congress later this month and policies on the property market will be the most important to judge on whether this crisis is coming to an end.”
• The size of the loan is big compared to the level in the first half, which is vital and helps developer cash flow.

Create Lee, investment manager at Monmonkey Group Asset Management Ltd.:

• The news may ease investor worry because of further policy relaxation expectations and can boost sentiment in the short term. However, longer term prospects still depend on buyer confidence.
   

Leonard Law, senior credit analyst at Lucror Analytics:

• “The financing support is likely to have a greater benefit for SOE developers, in the absence of any explicit language that the policy is targeted at private developers.”
• Banks would be remain keen to control their risk exposure to the property sector and only lend to the stronger names
• “For private and distressed developers, we expect the main focus is still to ensure housing delivery, rather than directly supporting their bonds.”