Investors Are Betting Chinese Developers Will Escape Trade Fallout
(Bloomberg) -- A brewing trade war with the U.S. and burgeoning economic woes at home may be weighing on the stocks of many Chinese companies but developers could be spared any further pain.
That’s according to fund managers canvassed by Bloomberg News who have either increased their positions in top home builders since October, or at least evaluated buying more shares, betting that restrictions on the sector may be eased. An index tracking 22 mainland developers listed in Hong Kong is down 31 percent from its January peak but did gain 14 percent in November as some provinces trimmed mortgage costs.
“Developers’ valuations have plunged, so any upside potential outweighs the downside risks,” said Vincent Hsu, a Taipei-based fund manager at Fuh-Hwa Securities Investment Trust Co., which in October purchased China Vanke Co. shares. “China may partly ease property controls next year, and anticipation of such a move may help the sector outperform the benchmark.”
Loosening measures could include lower down payments for first homes, reduced borrowing rates or granting lenders a higher quota for their mortgage businesses. A complete U-turn on restrictions is unlikely, however, China International Capital Corp. property analyst Eric Zhang wrote in a report last month.
The index tracking mainland developers is trading at about 4.6 times forecast earnings, below its historical average.
Bigger property firms with larger market shares will have the upper hand when it comes to securing financing, Zhang said, mentioning firms including China Overseas Land & Investment Ltd., China Resources Land Ltd. and Longfor Group Holdings Ltd. China’s top economic planner, the National Development and Reform Commission, pledged earlier this week to support bond issuance by highly rated companies, sparking hopes for more policy easing in the sector.
Regardless, many of China’s developers are deep in debt and some are struggling to meet interest repayments. Guangzhou R&F Properties Co. had its price target cut by Bocom International Holdings Co. last month on concerns it may miss sales targets and see slower growth due to its high financial burden.
If U.S. tariffs on Chinese goods really start to bite, Beijing will probably look to roll out some stimulus measures, according to Bruce Yu, a fund manager at Franklin Templeton SinoAm Securities Investment Management Inc.
“Gearing up infrastructure may be the first, and property easing could be another one,” he said. “We’re thinking about adding positions, and policy signals are key to our decision.”
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