HONG Kong-listed shares of China Vanke got their first sell rating from Wall Street brokerages, as the developer grapples with deepening liquidity pressure and slumping profits.

The Chinese builder “will undergo a challenging time of deleveraging and relying on banks and state-owned enterprises’ support”, JPMorgan Chase & Co analysts including Karl Chan wrote in a note dated Monday (Apr 1). Vanke’s decision not to pay a dividend with last week’s results are among other reasons for investors to be worried, they added. The stock dropped by as much as 12 per cent to a record low in Hong Kong on Tuesday.

The yearslong slump in China’s real estate sector that sparked several bankruptcies is starting to weigh on some larger developers that have managed to avoid default. Vanke – whose major shareholder is a state-owned firm in Shenzhen – has been seen as a bellwether for government support of major builders.

JPMorgan downgraded Vanke’s onshore and offshore shares to underweight from neutral, while slashing its price targets on both by more than 25 per cent. That is the first sell-equivalent rating for the H-shares, though it’s the fifth for the A-shares, according to data compiled by Bloomberg.

There have been other signs of concerns among financial institutions, with the property firm’s credit ratings cut to junk level by Fitch Ratings and Moody’s last month.

While JPMorgan believes Vanke will avoid default due to strong support from authorities, “until more solid evidence of liquidity easing, we think the share prices will remain under pressure”. The Hong Kong-listed stock has tumbled 88 per cent from its all-time high in 2018. BLOOMBERG

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