Market Wrap: Mainland developers gain on hopes of easing
Mainland property developers outperformed the market on Monday on speculation that China may announce more easing measures as early as this month after factory activity dipped into negative territory in August.
“Bad news from (the economic) data side could be good news for policies,” Lu Ting, an economist with Bank of America-Merril Lynch, said in an emailed note to investors over the weekend, reacting to data pointing to a steepening slowdown in the world's second biggest economy. Meanwhile, Citi analysts said the worst was over for Chinese developers, according to a research note dated August 31.
The official China PMI fell to 49.2, the weakest level since November 2011. A figure below 50 denotes contraction, while a figure above 50 signifies growth. Lu expects another cut in the reserve ratio requirement (RRR) -- RRR cuts tend to help highly geared developers -- to take place in September or October.
However, investors do not quite bullish on this sector yet. Ben Kwong, Chief Operating Officer at KGI Asia Ltd., told SCMP.com that the upside is limited for property stocks and the recent gains are only because “earlier corrections were overdone”.
A fund manager who asked not to be identified, told SCMP.com that he would not touch the mainland property sector for at least a year, citing an uncertain policy outlook.
His entire portfolio was evenly invested in gas, Chinese medicine and the consumer sector. He said he does not plan to increase or cut holdings at the moment, after taking profits over recent weeks.
KGI's Kwong suggests that investors focus on coal, cement and insurance companies in China. “Coal producers’ inventories are shrinking and prices are expected to pick up in the fourth quarter,” he said.
