China property stocks, bonds rally on reported fund help
CHINESE property stocks and dollar bonds rallied Monday (Jul 25), as a reported move by Beijing to establish a fund to support developers fuelled optimism about a turnaround for the struggling sector.
A Bloomberg Intelligence index of the country's real estate firms jumped as much as 3.4 per cent, the most in a week. China's high-yield dollar notes, predominately issued by developers, rose at least 1 cent on the dollar, according to credit traders, with a Bloomberg gauge tracking the sector set to gain for a fourth consecutive session.
Investors are resuming bets on the battered industry after REDD reported that China's State Council has approved a plan to set up a fund to support 12 developers and a few new distressed real estate firms nominated by local authorities. If confirmed, the move would mark one of the most direct measures yet taken by Beijing to salvage a sector roiled by massive defaults, slumping sales and a widening boycott on bank loans.
"This is a positive move to support the housing market and lowers the risk of developers suffering from mortgage boycott from homebuyers," said Patrick Wong, an analyst at Bloomberg Intelligence.
According to REDD, the fund secured 50 billion yuan (S$10.3 billion) from China Construction Bank and a 30 billion yuan relending facility from the People's Bank of China. It can be upsized to between 200 billion yuan and 300 billion yuan, it added.
Among the top stock gainers, Guangzhou R&F Properties rose 9.1 per cent, while Country Garden Holdings was up more than 8 per cent. Agile Group Holdings gained 7 per cent.
In the credit market, dollar bonds of investment-grade Chinese developers jumped in tandem with their junk peers, led by China Vanke and Longfor Group Holdings.
"The mortgage boycott is effectively forcing Beijing to ease credit conditions for developers," said Amy Xie Patrick, a portfolio manager at Pendal Group. "The real estate fund, if confirmed, is a stronger initiative compared to previously guiding state banks to lend to property developers, but it won't be enough to solve the problem unless it can be capitalised by a blank cheque from the Chinese government," she said. BLOOMBERG
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