Chinese property stocks regain favour as traders seek insurance from overvalued green-energy bets and tech fallout

China Vanke, Poly Development led a rally in Shenzhen and Hong Kong as analysts cautioned about expensive valuation in new-energy stocks

A gauge of 33 Chinese developers traded at an average price-earning of 4.4 times at end-July, the cheapest in 16 months

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China Vanke, the nation’s third-largest developer, is among stocks favoured by traders. Photo: Getty Images

Published: 4:10pm, 11 Aug 2021Updated: 4:25pm, 11 Aug 2021

Chinese developers surged in the mainland and Hong Kong markets, becoming the latest stopover for investors seeking to insulate themselves from an overvalued new-energy sector and the regulatory assault on the nation’s technology companies.

China Vanke and Poly Development led the charge as traders rotated their bets to old-economy stalwarts and market laggards as even the nation’s biggest stock bull like Li Daxiao of Yingda Securities grew nervous about the lofty valuation of stocks in the green-economy.

Vanke jumped 5.7 per cent to 23.11 yuan in Shenzhen, extending its gain from a July 27 low to 15 per cent, while its Hong Kong-traded shares surged 5.3 per cent to HK$23.75. Poly rallied 8.4 per cent to 12.59 yuan in Shanghai while Gemdale climbed 6.8 per cent to 10.72 yuan. The broader Chinese markets gained less than 0.2 per cent.

The sector regained favour after Beijing’s persistent curbs on home price increases and speculation. A sector-wide debt clean-up under the central bank’s “three red lines” leverage thresholds has also put their finances in better shape and boosted the prospects for industry consolidation. Even China Evergrande, among the weakest of the lot, has pared its debt by more than a third from its peak in 2020.

“In the long run, the property industry is big enough and will experience sound development after deleveraging,” said Lu Bin, a fund manager at HSBC Jintrust Fund Management in Shanghai. “After the market corrections, the implied returns on some big caps are becoming more and more attractive.”

A gauge tracking 33 developers listed in the mainland and Hong Kong markets was valued at 4.4 times earnings at the end of July, the cheapest level in 16 months, according to Bloomberg data. They currently traded at 4.9 times earnings and at 52 per cent average discount to their book values.