China stock market

Chinese property developers fall on a weak yuan

The decline is also caused by ongoing controls to curb home prices in mainland China

PUBLISHED : Friday, 20 July, 2018, 12:58pm
UPDATED : Friday, 20 July, 2018, 5:53pm

Chinese property stocks in Hong Kong and China dropped on Friday under the weakest yuan in a year, continuing the trend of a sector which has been falling in recent months.

A depreciation of the yuan, which was at its lowest in a year by Thursday’s market close, and government policies to control home prices have caused a continued downfall of the property market.

“The depreciation of yuan is definitely taking its toll on the property stocks as properties are major assets denominated in yuan,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “And also the current tightening measures against the property market are harsher than was expected. So the negative sentiment on the sector will probably persist.”

China Overseas Land & Investment ended the day down 1 per cent to HK$23.40, having earlier broken a yearly low in share prices when it sunk to HK$22.80.

Many Chinese developers dropped to monthly lows during trading, with some making a comeback by market close.

Country Garden Holdings rose 2.8 per cent to HK$12.66, recovering from the monthly low of HK$11.60 it touched at midday.

New World Development, a Hong Kong-based developer with assets in the mainland, hit a monthly low of HK$10.52 earlier in the day, but finished at HK$10.70, the same share price as Thursday’s close. Sunac China Holdings also ended unchanged from the previous close, at HK$24.20, etching back from a low of HK$22.60 earlier in the day. It saw the largest turnover of property stocks during Friday’s session, at a total HK$1.7 billion.

China Jinmao Holdings, however, made up loses to end the week up 0.5 per cent at HK$3.73, in a comeback from a monthly low of HK$3.50 earlier in the day.

Shimao Property Holdings and China Resources Land saw huge losses of 4.7 per cent to HK$20 and 3.4 per cent to HK$26, respectively, during earlier trading. Shimao ended down 0.7 per cent at HK$20.80, and China Resources similarly dropped 0.7 per cent at HK$26.65.

The depreciation of yuan is definitely taking its toll on the property stocks as properties are major assets denominated in yuan
Wang Chen, Xufunds Investment Management

While policymakers restrict the number of houses individuals can buy in China’s first and second-tier cities, they also stop compensating affected residents of shanty town redevelopments with money that was fuelling a boom in the smaller cities.

“The yuan depreciation can’t be fully discounted, it is part of the reason, but I think the main reason is the impact of government policy on property market,” said Louis Tse Ming-kwong, managing director of VC Asset Management. “In places like Shenzhen and Guangzhou, the property price has gone up quite obviously, which the central government doesn’t want.”

China Vanke made a dramatic comeback by Friday’s close. The stock had dropped as much as 2.9 per cent to 22.02 yuan in Shenzhen, heading for the lowest close since August 17, before erasing the loss alongside a rally on the broader market. It rose 2 per cent to 23.14 yuan by close.

Jushenghua, which set up nine asset-management plans to gain control of Vanke, and Forsea Life insurance sold a combined 551 million shares in the property developer, or a 5 per cent stake, through the Shenzhen bourse over the past three months, according to an exchange filing by Vanke.

Both Jushenghua and Forsea Life are owned by magnate Yao Zhenhua’s Baoneng Group. Yao stepped down as chairman of Forsea Life last year and the insurer was fined by the regulator for leveraged stock purchases.

Vanke’s Hong Kong-traded stocks slid 2.2 per cent to HK$24.05 during the day, on course for the lowest close since September 6, but also recovered and ended up 1.8 per cent at HK$25.05.

Foreign investors in the Asian property market will want to sell their stocks in expectation of the yuan falling further, Tse added.