Developers on mainland and Hong Kong bourses have diverged in recent weeks, with typically stronger firms listed in Shanghai and Shenzhen outperforming. A move by authorities encouraging lenders to fund acquisitions of projects held by distressed developers may benefit larger, often state-owned firms most. A Bloomberg Intelligence gauge of Chinese property companies mostly traded in Hong Kong closed on Monday near a five-year low before rising 3.4% on Tuesday.
The most likely scenario is many of the private property developers are going to be taken over by state-owned companies. Since that is the most likely result, the state-owned sector will be the primary beneficiary of the rationalisation of the property developers’ sector.
It also suggests that a comparatively small number of these companies will eventually default. The CSI 300 Real Estate Index has eight constituents but China Vanke and PRC occupy a 61% weighting. The Index continues to steady from the lower side of a six-year range.
The Hang Seng China Enterprises Index is very short-term oversold as it tests the lower side of the 12-year range.