News Alert: Possible financial support from the government
- REDD reported that Beijing plans to offer financial support to selected developers via a real estate fund with a possible total fund size of Rmb200-300bn
- If confirms to be true, we believe this could help cushion investor sentiments on the sector and surviving developers which were heavily sold off could see a round of share price recovery
- Upon low investor confidence over the sector and on regulators’ willingness to put in action, sustainability of such rebounds would require hard evidence relating materialization of the reported financial support
- We recommend to stay with quality names before more clarity are shown
REDD reported that Beijing is planning to create a real estate fund to provide financial support to selected troubled developers, with phase 1 of the fund to potentially comprise of Rmb80bn (Rmb50bn from China Construction Bank and Rmb30bn from PBoC) and possible total fund size of Rmb200-300bn. Regulators are also reportedly considering to draft a policy for the issuance of special bonds for shantytown redevelopments.
A long-waited gesture from the government… There has been overwhelmed market concerns over an unprecedented hard landing in the property sector alongside regulators’ seemingly slow and inactive response over the past year, especially with the ongoing phenomenon relating the mortgage payment suspensions. Share price of surviving names and those that were known to be widely owned by investors like Longfor (960 HK) and CIFI (884 HK) have faced significantly higher sell-off pressure. We believe the news, if confirms to be true, could help to cushion investor sentiment in the sector and lead a round of share price rally on high beta surviving developer names that have been heavily sold off over the past two weeks.
…but sustainability of the rebound require actual materialisation of the support. Having said that, market confidence on the sector and on regulators’ willingness to put in action is low. We believe the sustainability of the share price recovery would depend on whether there are concrete progresses and follow-ups as to the materialization of the financial support.
Stay with quality names before more clarity are shown. We recommend investors stay with quality names that are less affected by the ongoing turbulences in the property sector. Our sector top picks in this regard are COGO (81 HK), Longfor (960 HK), COLI (688 HK), CR Land (1109 HK) and Yuexiu (123 HK).