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<Research>JPM: Rebound of CN Property Stocks May be Short-lived; Apr Mth-to-date Sales Drop Worst in Recent Yrs
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JPMorgan released a report on the Chinese property sector. Since bottoming out in mid-April, the sector has rebounded 16%, outperforming the MSCI China Index (+7%), which is believed to be driven by capital flows. Despite the recent outperformance, the mainland property sector has lagged so far this year, with Chengdu lifting its purchase restrictions and Nanjing relaxing its residency requirements to allow home buyers to open a local household account (hukou) directly. Rising expectations that first-tier cities will relax their purchase restrictions in May could also boost the momentum. However, JPM believed the rally in Chinese property stocks may only be short-lived, and that if past industry rebounds are used as a benchmark, the broker doesn't see much upside to the current rebound. Even if the MSCI China Index stays strong due to more capital flows, the broker expected China's property sector may still underperform. In fact, the sector's fundamentals are arguably getting worse, as sales in April were worse than expected. April month-to-date sales are down 40% compared to the same period last year, and down 57% compared to the four-year average, the worst month in recent years. In the broker's view, a sustainable rebound in the sector will require a sustainable sales recovery and a stronger policy response. JPMorgan sees limited investor interest in chasing domestic property stocks, except for a few investors who have expressed interest in large SOEs and may be waiting for a better entry point. The broker also sees rising hedge fund interest in short-selling, as the recent rebound has not been entirely fundamentally driven. On the easing measures in Chengdu and Nanjing, the broker sees that after Chengdu, the key areas that have yet to fully lift the purchase restriction are all four Tier 1 cities (Guangzhou still retains the restriction on small households in the core area), Hainan, Hangzhou, Tianjin, Xi'an and Zhuhai. Judging from similar easing in other cities, the easing of purchase restrictions may stimulate a rebound in transaction volume for 1-3 months, but the volume may cool down thereafter. The broker believed this would only be a mild relief measure, as Nanjing's purchase restrictions had already been cancelled previously. Most of the biggest developers in Chengdu and Nanjing are state-owned, so the beneficiaries, if any, will be the large state-owned developers. JPM is bullish on CHINA RES LAND (01109.HK), CHINA OVERSEAS (00688.HK) and CHINA RES MIXC (01209.HK). AAStocks Financial News |
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