China property

Chinese developers buy back their own shares to prop up prices as business prospects dim

Eight property firms have spent US$560 million on their own stock in July, but investors remain downbeat over the outlook for the industry as Beijing cracks down

PUBLISHED : Sunday, 29 July, 2018, 10:04am
UPDATED : Sunday, 29 July, 2018, 10:58pm

Chinese property developers listed in Hong Kong have stepped up buying of their own shares this month as their business prospects dim, but fund managers and analysts remain sceptical that the purchases could translate into a sustained rebound in the Hong Kong market.

Eight mainland-based developers spent a total of HK$4.4 billion (US$560.7 million) on buying their own shares between July 2 and July 23, representing 43 per cent of the overall total between those dates. China Evergrande alone spent over HK$3 billion, repurchasing so many shares that it is at risk of falling short of the minimum free float required by the stock exchange. Others also buying included Shimao Property Holdings, Logan Property Holdings and China Jinmao Holdings.

Investor confidence in Chinese developers has remained subdued, especially after 30 mainland cities implemented tighter property regulations last month. The real estate sector may already be showing signs of cooling, with property sales by floor area rising only 4.5 per cent in June from a year ago, down from an 8 per cent gain in May, Reuters calculations based on official data showed.

“Chinese developers still have a lot of borrowings so their growth will continue to slow. We are not optimistic even if there is going to be some rebound in stock prices after the sharp declines,” said Ruby Wong, assistant vice-president for investment strategy at Haitong International Securities.

Others noted that although Beijing has signalled that it was shifting toward policies that would support the economy, the property market was not included, with restrictions unlikely to be loosened.

The surge in buy-back activity also comes as Hong Kong’s benchmark Hang Seng Index has fallen to seven-month lows, dragged down by expectations of slowing economic growth and concern over trade frictions between the US and China. The Shanghai Composite Index meanwhile has fallen by more than 20 per cent from its peak in January, technically trading a bear market.

The Hang Seng properties index, a measure of Hong Kong’s real estate equities, had a spectacular bull run from 14,222 points at the beginning of the global financial crisis in 2008 to a peak of 43,988 in mid-January. But it is gradually retracing lower this year, and currently is around 39,000.

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Overall buy-back figures on the Hong Kong stock exchange are heading for a historic high this month. A total of 63 companies posted HK$10.3 billion worth of transactions between July 2 and July 23. That is more than the averages for July from 1992 to 2017 of 24 companies and HK$761 million, according to Robert Halili, managing director of Asia Insider.

Analysts stopped short of saying the latest buy-backs could lead to a turnaround in the market, and expected any upcoming rebound in property stocks merely to be temporary, as developers remain under pressure from Beijing’s desire to deflate a property bubble.

In 2017, buy-backs by Evergrande helped its stock rise 458 per cent, but this year it remains lower by 20 per cent despite its buy-back efforts.

“I’m giving up on the Chinese developers,” said Kenny Wen Kit, a strategist for Everbright Sun Hung Kai Investment. “When the government is determined, don’t even think about it.”