Chinese property stocks, bonds rally on fund help

Bloomberg

Chinese property stocks and dollar bonds rallied on Monday, as a reported move by Beijing to establish a fund to support developers fuelled optimism about a turnaround for the struggling sector.
A Bloomberg Intelligence index of the country’s real estate firms jumped 1.7%, the most in a week. China’s high-yield dollar notes, predominately issued by developers, rose at least 1 cent on the dollar, according to credit traders, with a Bloomberg gauge tracking the sector set for the longest winning streak in two months.
Investors are resuming bets on the battered industry after REDD reported that China’s State Council has approved a plan to set up a fund to support 12 developers and a few new distressed real estate firms nominated by local authorities.
If confirmed, the move would mark one of the most direct measures yet taken by Beijing to salvage a sector roiled by massive defaults, slumping sales and a widening boycott on bank loans.
“The mortgage boycott is effectively forcing Beijing to ease credit conditions for developers,” said Amy Xie Patrick, a portfolio manager at Pendal Group Ltd.
“The real estate fund, if confirmed, is a stronger initiative compared to previously guiding state banks to lend to property developers, but it won’t be enough to solve the problem unless it can be capitalised by a blank cheque from the Chinese government,” she said.
According to REDD, the fund secured 50 billion yuan ($7.4 billion) from China Construction Bank Corp and a 30 billion yuan relending facility from the People’s Bank of China. It can be upsized to between 200 billion yuan and 300 billion yuan, it added.
Bloomberg News first reported some aspects of the plan, revealing that regulators have asked China Construction Bank, the nation’s largest mortgage lender, to explore a pilot program to set up a fund with selected local governments to purchase projects under construction that have yet to find buyers, with the aim of converting them into apartments for long-term rentals.
In the credit market, dollar bonds of investment-grade Chinese developers jumped in tandem with their junk peers, led by China Vanke Co and Longfor Group Holdings Ltd.