China’s defaulted property developers soar 200% in speculative frenzy

HONG KONG – Shares of Chinese property developers rallied like never before after Beijing joined its so-called tier-one city peers to ease rules for home buyers, following the Asian nation’s call to put a floor under the property market decline.

A Bloomberg Intelligence gauge of Chinese real estate stocks surged as much as 31 per cent – a record – on Oct 2, following the Sept 30 announcement that the nation’s capital will make it easier for non-residents to buy property in core areas and cut minimum down payment ratios.

The index has risen 92 per cent over the last five trading days.

During the same period, stocks of some of the defaulted developers – including Shimao Group and Sunac China – have surged more than 200 per cent each. Huarong International Financial rose as much as 463 per cent on Oct 2 alone. 

China’s stimulus blitz

has sent the market’s assets soaring in recent days, and the euphoria continued in Hong Kong on Oct 2 when it reopened after a holiday.

Led by property developers, the Hang Seng China Enterprises Index jumped as much as 8.4 per cent for a 13th day of gains, its longest streak since January 2018. 

“(The) resolute stance of rescuing property markets from top central government officials, coupled with (the) wealth effect from recent strong rallies of stock markets, should improve market sentiment and lead to better sales ahead,” said Mr Raymond Cheng, head of China property research at CGS International Securities Hong Kong.

“The tier-one or top-tier cities will be the first batch of cities benefiting from (a) strong sales recovery.”

In the US, trading of bullish bets on KE Holdings – a proxy for the Asian nation’s property market – surged on Oct 1 to a record of almost 146,000 calls. October contracts with strikes of US$30 – 51 per cent above the previous close – were the most active, followed by October US$26 calls.

The bullish trading sent the cost of betting on further gains to a record high relative to puts protecting against declines. As at the last close, there were four times more calls outstanding than puts.

Some dollar notes of Sunac jumped by as much as 16 per cent in the past five days, while those by Cifi Holdings Group climbed 9 per cent – though still at deeply distressed levels of less than 10 cents on the dollar. Shimao’s dollar bonds were little traded as the company is in the process of coming up with a debt restructuring plan.

While the mood in the market was soundly positive on Oct 2, Morgan Stanley analysts had a word of caution.

“The recent measures will help stabilise the property market, but lifting prices and reviving demand will be challenging,” analysts led by Mr Chetan Ahya wrote in a note.

“The continued drag from the property sector will leave a sizeable shortfall in demand behind, keeping growth below target.” BLOOMBERG