Analysts: China's Property Stock Surge Unsustainable

(MENAFN- Asia Times) Stock investors have been cheered by the long-hoped-for rally of Chinese property shares so far this month but analysts warn that the surge cannot be sustained over the medium term.

Reason: The scale of the home purchase scheme unveiled by the People's bank of China (PBoC) is too small and will not be enough to reverse the declining trend of the property markets.

Analysts say property developers' profitability will not improve in the coming six months and those companies' shares will be under pressure again. They say they are also bearish on other stocks, as weak domestic consumption remains the biggest problem for the Chinese economy.

Asia Times interviewed Arthur Budaghyan, chief emerging markets and China strategist of BCA Research, a Canada-based investment research company, to get his take.

”Four to six months from now, Chinese property stocks will probably be lower than today's level,” Budaghyan said.“In the short term, stock markets can be irrationally driven by some wrong kinds of perceptions, but over the medium term fundamentals will prevail.”

He said the Chinese government has been stimulating the property markets and economy for two and a half years but the effort has not succeeded. For example, he said, the government decided in late 2022 to provide 1.88 trillion yuan (US$259 billion) funding to property developers to complete unfinished apartments but the move failed to boost property prices and sales.

He said the funding for local governments to purchase unsold homes from the markets is too small when compared with property developers' total sales in 2023.

Outstanding housing stock

The PBoC said on May 17 that it will establish a nationwide program to unleash 300 billion yuan in cheap funding to help state-owned-enterprises (SOEs) buy unsold homes in a bid to reduce property inventory in the markets.

The central bank will offer loans to national banks to cover 60% of their lending in the scheme, meaning that the banks will have to lend another 200 billion yuan to SOEs, bringing the total up to 500 billion yuan.


Asia Times

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