CHINESE developers' shares and dollar bonds extended a rally on Monday (Nov 14), fuelling broader market gains, as fresh property rescue measures and easing Covid controls raise hopes that the worst may be over for the world's second-largest economy.
A Bloomberg Intelligence stock gauge of Chinese builders jumped to a record 19 per cent earlier, before finishing the day up 14 per cent. Country Garden Holdings, the country's top developer by sales, surged 46 per cent. Developers' junk dollar bonds also soared at least 5 cents on the dollar on Monday morning.
The gains offer a sign of optimism that a real estate sector rattled by slumping demand and record defaults may soon see a bottom, after Beijing is said to be preparing an extensive package aimed at easing developers' liquidity strains and reviving home purchases. These measures, together with a relaxation of Covid curbs, indicate that economic growth has returned as a top policy priority.
"We are looking at this with a more favourable outlook," Stephen Chang, managing director and portfolio manager at Pimco Asia, said in an interview with Bloomberg TV. "There are still a lot of risks, but it seems like some of the tail risk has been clipped, with at least a more supportive measure and more pragmatic thinking now."
The relaxations on both real estate and Covid policies lifted sentiment across Chinese markets, with a gauge of Chinese stocks listed in Hong Kong up 1.9 per cent at close. The offshore yuan rose as much as 1 per cent against the dollar at one point.
Government bonds tumbled as demand for haven assets fell, with the yield on 10-year debt rising the most in over a year.
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The 16-point rescue package said to be prepared by regulators came after authorities expanded a key funding support programme designed for private firms, including developers. The latest measures range from addressing developers' liquidity crisis to loosening down-payment requirements for homebuyers.
In a statement released on Monday, China's banking and insurance regulator said it will grant "quality" developers access to as much as 30 per cent of pre-sale funds with letters of guarantee from lenders, a move aimed at alleviating liquidity risks.
The fresh property moves came hand in hand with a 20-point play book aimed at reducing the economic and social impact of containing Covid. The easing on both fronts marks a reversal from the gloom that descended over markets in late October, when President Xi Jinping's firmer grip on power at a major Communist Party Congress stoked concern about ideology trumping pragmatism.
The Hang Seng China Enterprises Index has now erased losses suffered in the immediate wake of the meeting, swinging from one of the world's worst-performing stock gauges to among the best. A Bloomberg index dominated by Chinese builders' junk dollar notes also rose last week.
"The latest move suggests the central government was worried that property sector problems will lead to systemic risk for China if not handled properly," said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities.
Despite the broader euphoria, a closer look at the property sector's performance suggests that the easing measures will more likely benefit developers that have yet to default, while the polarisation between stronger and weaker firms may persist for now.
For one, the bond rally has largely been limited to a handful of higher-quality names, from state-backed China Jinmao Holdings Group to Longfor Group Holdings and Seazen Group, both of which are participants in a state-backed programme for bond sales. The dollar notes of builders that have defaulted, including China Evergrande Group and Sunac China Holdings, barely moved. BLOOMBERG
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