Ratio cut to boost property stocks

Property stocks rallied on March 2 as developers looked set to benefit from the additional liquidity released from the Chinese central bank's decision to cut the reserve requirement ratio.

An index tracking the country's listed real estate developers in Shanghai and Shenzhen rose 3.5 percent, outperforming the benchmark Shanghai Composite Index, which gained 1.68 percent.

A dozen property stocks surged by the 10 percent daily trading limit after the People's Bank of China cut the RRR for banks by 50 basis points effective on March 2.

The RRR cut, which is expected to release up to 700 billion yuan ($106 billion; 98.2 billion euros) of liquidity, will help expand the banking credit available to the property market, a highly credit-sensitive sector, according to analysts.

"The RRR cut will release more banking credit for property developers, providing strong support for housing prices, especially in first and second-tier cities," says Dai Jupeng at Sealand Securities Co.

The additional liquidity should also prompt lenders to expand personal mortgage loans, which could further push housing prices, he adds.

The government has issued a slew of policies to stimulate the property market amid a slowing economy, which has made property stocks more attractive than other sectors in terms of short-term investment opportunities.

"Monetary policy is one of the most important factors that help determine the fundamentals of the property sector," Yan Changming at Industrial Securities Co says in a research note. "Given the monetary easing stance by the central bank, the sector will continue to benefit from it."

The central bank lowered mortgage down payment requirements to the lowest level ever in February. The Ministry of Finance also cut the taxes on home transactions, to help reduce oversupply.

Analysts at Ping An Securities Co suggest investors could go overweight on property stocks given the policy stimulus and relatively low valuations of developers amid the volatility of the general market.

Xie Haoyu at Huatai Securities Co says long-term investment opportunities could emerge from leading developers that possess the strength to carry out mergers and acquisitions.

"The supply-side reform for the property sector is about destocking. Necessary M&A activities within the sector could help reduce the market oversupply," Xie says.

While the latest RRR cut could help spur sales for all developers in the short term, only leading property developers will likely benefit from the M&A trend amid the supply-side reform in the long run, Xie adds.

lixiang@chinadaily.com.cn

( China Daily Africa Weekly 03/04/2016 page26)