The View | Why Chinese property stocks’ fortunes are finally looking up

It has been a long time since China’s stock market outperformed benchmark global indices in a four-month period. This makes the 26 per cent gain in the MSCI China Index, which tracks Chinese shares listed at home and abroad, since January 22 all the more remarkable.

While the gauge is still down almost 50 per cent from its peak in February 2021, the bull run in Chinese equities has been the big surprise in global markets in 2024. Although several factors are at play – including stronger-than-expected growth in the first quarter, cheap valuations and Chinese stocks’ weak correlation with bond markets in the United States – Beijing’s more forceful measures to stem the crisis in the housing market have contributed significantly to the improvement in sentiment.

Since mid-April, when the rally in Chinese equities gathered momentum, real estate shares have driven the recovery along with internet stocks, a Bank of America report on May 22 noted. The dramatic gains stem from the government’s decision to tackle the property crisis with greater urgency and in a more comprehensive manner than investors expected.

The persistent deterioration in the housing sector has “breached policymakers’ pain threshold, pushing them to step up housing easing and shift the strategic focus towards digesting existing inventory,” Goldman Sachs noted in a report on May 18. Prices for new homes in 70 cities last month fell at their sharpest pace in both monthly and annualised terms in at least a decade.

The package of measures announced on May 17 includes a cut in the minimum down payment ratio for first-time buyers to a record low 15 per cent and a removal of the nationwide floor for mortgage rates. It also provides a framework for reducing housing inventory.

China’s central bank will offer 300 billion yuan (US$41 billion) in cheap funding to state banks for them to extend financing to local state-owned enterprises (SOEs) chosen by local governments to support the purchase of unsold homes at reasonable prices.