Implementation of more supportive measures in the near future
? The central Politburo last Friday vowed to further increase the efforts to
maintain the stability of China’s economy.
? The property sector was one of key sectors mentioned in the post-meeting
statement; the central government aims to ensure stable sector growth.
? As such, we expect a ramp-up in implementation of the supportive measures
already announced.
? We like Longfor, CG and CIFI in the mid- and large-cap space and prefer
Times and KWG among the small caps. For SOEs, we like CR Land.
Central Politburo meeting to discuss latest economic headwinds
The Central Politburo of the Communist Party of China in a meeting led by President Xi
last Friday (29 Apr) deliberated on the latest economic situation of China. The politburo
concluded (click here) that given the current Covid-19 situation in China and the crisis in
Ukraine, China is facing increasing risks, challenges and uncertainty related to its goals of
“stable growth, stable job market and stable prices”. The politburo emphasised the
importance of containing Covid-19 and stabilising China’s economy, and called for an
increase in measures to ensure the nation achieves its economic target and maintains its
economic operation at a reasonable pace. It vowed to speed up the implementation of
measures already announced, including tax refunds/reductions. It also sees the need to
expand internal demand, increase infrastructure construction, etc.
Supportive measures related to property sector
For the property sector, the politburo stressed the need for effective management of key
risks, and avoidance of systematic risks. It pointed out that measures to: 1) support local
cities based on their respective property market situation, 2) support genuine housing
demand, 3) optimise the supervision of pre-sale funds, and 4) facilitate the healthy
development of property market should be implemented as long as they do not violate the
“housing is for living and not for speculation” directive.
Ramp-up in implementation of policies in the near term
Despite a series of supportive measures announced in the past 1-2 months, the market is
still concerned over developers’ default risk, as many of the supportive measures such as
loosening of presales cash, reopening of the debt market, faster loans approval, and lower
down payment and mortgage rates, have not been fully implemented. Given the
deterioration of China’s economy since Apr, we expect a ramp-up in implementation of
measures supportive of the property markets, which could lead to the recovery of property
sales, construction activities and land purchases.
Reiterate Overweight; top Adds: Longfor, CIFI, CG, KWG & Times
We reiterate our Overweight call on the sector in view of the strong policy support and the
sector’s attractive valuation, currently at a low c.0.45x 2021 P/BV, about 1.5x s.d below its
5-year average. Overall, we prefer non state-owned enterprise (SOE) developers over the
SOEs as the latter have substantially outperformed in the past 12 months due to investors’
risk aversion. As investors’ appetite return on the back of policy support for the sector, we
expect non-SOEs to outperform. We like Longfor, CIFI and Country Garden (CG) among
mid- and large-cap plays. For small caps, we like Times and KWG. For SOEs, we like CR
Land. Key risks to our positive call include weaker-than-expected sales recovery and
higher-than-expected number of developers facing liquidity problems.