The surge in Chinese builders’ stocks and dollar bonds isn’t over as buying momentum driven by supportive government policy is likely to persist, some investors say.
The recovery has been driven by a flurry of measures aimed at stemming China’s property crisis, after efforts to crack down on debt-fueled speculation in the sector brought on a liquidity crunch. The fallout included a record amount of offshore-bond defaults and projects being suspended as builders ran low on cash.
Prices for high-yield notes, a sector dominated by property firms, have reached levels last seen in January 2022 at an average 75 cents on the dollar, according to a Bloomberg index. They bottomed November 3 at a record low of 49 cents. Meanwhile, a Bloomberg Intelligence gauge of builders’ stocks has soared more than 70 percent from an 11-year low.
“China property dollar bonds will continue to ride on the momentum for some time, and we don’t expect to see any major negative news for the sector in the near term,” said Wonnie Chu, managing director of fixed income at Gaoteng Global Asset Management Ltd. “Investors in the dollar-bond market have been chasing yields as well, which helped this rally.”
It’s been a drastic reversal from the dark clouds hanging over the sector since mid-2021, when new-home sales began falling. In recent months, Beijing has ushered in a rash of support measures targeting developers’ liquidity and the sales slump. JPMorgan stock analysts wrote this week that more easing news “could drive short-term excitement in January” before a possible February pullback.
The government said late Thursday that it would allow an extension of lower mortgage rates for first-time homebuyers under certain conditions, while the housing minister made a fresh pledge to help builders’ financing needs.
Property dollar bonds rose at least 1 cent Friday, according to credit traders, and the BI builder stock gauge rose as much as 2.1 percent.
Chu said the policy support has improved some developers’ funding channels and liquidity situations. “Some policy may even help stimulate demand in the longer term as buyer sentiments improve,” she said.
But the recent default by builder Times China Holdings Ltd. shows that government help may not be a panacea.
“I don’t believe all of the names rebounding will be survivors,” said Chu. “For those lacking solid funding channels, we will take profit gradually.”