China property bulls see silver lining behind earnings flop

BLOOMBERG

China property bulls are looking past what’s likely another disastrous earnings season for the nation’s embattled developers, betting on a recovery as green shoots emerge in sales.
Sixteen of Hong Kong-listed Chinese real estate firms have so far flagged profit slumps for 2022 with the number expected to grow, according to JPMorgan Chase & Co. The wave of warnings, combined with a lack of impressive stimulus from the National People’s Congress (NPC), sent a Bloomberg gauge of developer shares into a bear market.
But with most of the ugly news likely baked into share prices, some market watchers are citing an uptick in new home sales — February saw the first rise in 20 months — as a reason to be optimistic. Extensive measures since late last year to ease the sector’s liquidity crunch have also helped assuage default concerns.
“The results announcements might in fact be a clearing event,” JPMorgan analysts including Karl Chan wrote in a note earlier this month. “As sales data over the next few months will likely continue to improve, we expect the sector to see a gradual re-rating.”
Country Garden Holdings Co, China’s largest developer, set the grim mood for the coming season by warning of its first-full year loss in at least 16 years.
The bottom-line slump from a developer considered a safer bet underscores the toll from the Chinese government’s clampdown on excessive leverage, which triggered a wave of defaults and the worst-ever downturn in the housing market.
JPMorgan’s analysis shows a 52% slide in 2022 earnings from Hong Kong-based developers that have released preliminary figures.
A Bloomberg gauge of developers tumbled into bear market territory earlier after falling more than 20% from a January 27 peak, with authorities adding to the weak sentiment by reiterating their mantra at the NPC that “houses are for living in, not for speculation.”
The property stocks index rebounded as much as 3% after flashing oversold signals, poised to snap a seven-day losing streak.