China developers’ stocks and bonds buoyed by hope for central bank monetary support, as Beijing expands bond programme
- The Hang Seng Mainland Properties Index rose 4.3 per cent on Wednesday, and some developers’ bonds soared
- Traders were buoyed by the expansion of a bond financing programme, betting on more support from authorities, especially the central bank
Chinese property stocks and bonds soared on Wednesday as authorities vowed to aid bond financing and investors placed bets on direct monetary input from the central bank to buoy developers.
The Hang Seng Mainland Properties Index jumped 4.3 per cent on Wednesday and has soared 27 per cent so far this month – beating an 11 per cent gain on the Hang Seng Index in the same period.
Investors were also buoyed by a Wednesday article in Financial News, a newspaper managed by the People’s Bank of China, which forecast that the property market would gradually bottom out and stabilise this year.
In the bond market, a number of bonds surged by more than 20 per cent and triggered trading halts. Jinke’s 1 billion yuan onshore bond, with a coupon rate of 6.3 per cent, skyrocketed 74 per cent, Longfor’s 4.44 per cent bond of 1.8 billion yuan rose 29.3 per cent and Country Garden’s 4.8 per cent bond of 2 billion yuan rose 29.1 per cent.
The mention of direct bond purchases fuelled optimism about direct monetary support from Beijing, according to traders and analysts.
“The key difference for this news is that it actually includes direct purchase of bonds, but we require a detailed follow up on the scale and method of purchase (executed by which entities and whether [the bonds will be bought] in the primary or secondary market, etc),” Nomura analyst Iris Chen wrote in a note on Wednesday.
“The support is stronger than before,” said Sinolink Securities in a report issued on Tuesday, pointing out the importance of the key word “direct bond purchase”.
However, the impact may be limited.
“Private developers with better fundamentals and sales situation and those with good-quality collateral will have a higher chance of getting the support,” said Sinolink analysts led by Du Haomin. “As the ones that were supported to issue bonds in May and August need relatively high-quality collateral.”
Late on Wednesday afternoon, state-owned China Bond Issuance announced an application channel for private developers to seek credit enhancement from the country’s first professional credit-enhancement institution. An application form requires developers to state whether they had bond extensions or defaults before, and the details of collateral.
“A reiteration of onshore bond issuance using previous structures cannot really materially solve the funding problem, as China Bond Insurance will require stringent selection on pledged assets to issue bonds of such structure given what we saw in previous rounds,” said Chen of Nomura.
The move may only benefit the stronger developers, instead of the ones that need funds the most, analysts said, while home sales will be the key factor for developers’ fundamentals.