Chinese developers rise as banks urged to tackle mortgage crisis

(Bloomberg) – Shares of Chinese developers jumped the most in nearly a month following a report that the country’s banking regulator urged lenders to support the sector amid a growing mortgage boycott.

A gauge of Chinese property companies gained as much as 3.6% on Monday, on track to snap a five-day decline. Among the top performers are KWG Group Holdings Ltd. and Seazen Group Ltd., both of which grew more than 10% in Hong Kong. The city’s benchmark Hang Seng index gained as much as 2.7%, driven by real estate stocks.

The slump in real estate stocks has been a key driver of the recent market downturn as traders fear wider contagion from the struggling sector. Investors got some relief after local media reported that China’s Banking and Insurance Regulatory Commission had asked lenders to provide credit to eligible developers so they could complete stalled projects.

Authorities have also urged banks to respond to legitimate funding requests to support transactions and help stabilize the market, the report adds. Still, investors will be looking for more concrete steps to ease strains in China’s badly battered real estate sector, which is still reeling from defaults by some of the biggest builders.

Despite Monday’s rally, Chinese property stocks remain down more than 10% in July.

Here’s what analysts are saying:

CGS-CIMB Securities (Raymond Cheng)

  • “The news is positive for the industry as regulators are asking banks to help solve the problem even though banks are unwilling to do so from a business perspective”
  • “As the problem has escalated nationally, we believe that central government and regulators will treat it very seriously. Based on the latest developments, we expect a number of these projects to resume work from construction in the near future after banks release these funds from escrow accounts or provide additional funds for construction.

Goldman Sachs Group Inc. (Hui Shan)

  • “Regulators came to reassure the market and also asked banks to lend money to certain developers to continue construction”
  • “Investors and the market do not know what the end game is. The central issue here is that the government intervene quickly to build confidence, solve the current problem and also provide more clarity to the market and investors on how this slowdown in the real estate sector will be resolved.

UOB Kay Hian Ltd. (analysts including Liu Jieqi)

  • CBIRC could take the no-payment mortgage crisis “as a chance to advance the transformation of the business model of the real estate sector”
  • Regulator will continue to support rigid housing demand

CEB International Investment Corp. (Banny Lam)

  • “Chinese banking regulators are asking commercial banks to finance the real estate project of real estate developers. The move tames the risks of mortgage defaults, preventing the ripple effects from spreading to the Chinese economy.”

Kingston Securities Ltd. (Dickie Wong)

  • “The real estate sector is too big to fail for the Chinese economy and officials seem to be doing their best to reassure the market and owners”
  • “At the moment, the risks of default on mortgage loans are minimal for the large public banks”

STOCKS TO MONITOR

  • Seazen Group jumps up to 11% in Hong Kong, Guangzhou R&F +13%, KWG Group +12%, CIFI Holdings +11%
  • CSI 300 Banks Index gains up to 1.7%, set to end eight-day losing streak
  • China Merchants Bank increases by 4% in Hong Kong, Postal Savings Bank +4.4%, Bank of Chengdu +2.5% onshore

READ MORE:

  • China asks banks to fund housing projects amid mortgage boycotts
  • Anxiety grips Chinese markets as mortgage boycotts turn into crisis
  • China’s real estate crisis escalates as homebuyers boycott (2)
  • China Mortgage Boycott Data Wiped By Censors As Crisis Spreads

©2022 Bloomberg LP