China traders see property boost at Congress
BRUISED from a tumultuous year, China stock investors are looking to capitalise on any potential policy shifts at the twice-a-decade Communist Party congress next month.
A key strategy is to bet on more stimulus for the property market as authorities seek to rescue the ailing industry. Bloomberg Intelligence expects some steps to complete stalled housing projects following the Oct 16 leadership gathering, which can in turn support the banking sector by reducing loan risks and boosting mortgage demand.
With expectations low for an imminent shift away from the Covid-Zero policy, some investors are limiting their exposure to reopening shares. Societe General SA favours industrials and infrastructure stocks over consumer shares ahead of the event.
“There is going to be more support for the property sector because if the property market does not stabilise, the economy will not stabilise – and growth protection is the number one policy priority,” said Chi Lo, senior market strategist for the Asia-Pacific at BNP Paribas Asset Management.
China stock gauges last week added to what have already been some of the world’s worst losses this year, as the US Federal Reserve dealt global markets a hawkish blow.
Having grappled with Covid lockdowns, a property market downturn and Beijing’s conflict with Washington over trade and political issues for months, investors are hoping for the market to recover once the leadership reshuffle is complete and policy priorities are settled.
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China’s vast real estate sector is going through an unprecedented crisis as Beijing’s deleveraging campaign since late 2020 has ensnared even the nation’s largest developers. A stock gauge of developers has lost more than 30 per cent this year, despite dozens of measures to revive demand including loosening home-purchase restrictions.
Consumer sectors related to the real-estate market may see positive impact, said Li Jin, vice-managing director at Ruiyi Investment. Furniture and decoration materials have led declines in retail sales this year, slumping at least 8 per cent in August from a year earlier.
Sector-wise, past experience shows financials, food and beverage, communication, and defence sectors have beaten markets in the month ahead of the event, Li Xing, an analyst at Yuekai Securities, wrote in a Sep 18 note.
Overall, any boost to the broader market from the Party congress is expected to be modest, several analysts have said, amid slim odds of an early loosening of Covid restrictions.
The MSCI China Index has typically generated about 2 per cent returns in the month before the congress in the past, noted Goldman Sachs Group strategists, who are unsure the gains can be repeated this time around.
The gauge has lost about 20 per cent this quarter, versus a loss of less than 5 per cent for an index of global stocks.
To factor in a possible extension of the Covid Zero strategy, Goldman Sachs and Nomura Holdings Inc. slashed their 2023 growth forecasts for China to below 5% last week.
“If no positive news come out on that front, the market could be disappointed,” said Jian Shi Cortesi, investment director at GAM Investment Management. “We control the exposure to re-opening names to hedge that risk.” BLOOMBERG
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