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Chinese Property stocks up on 2018 sales optimism
10 Jan

Real estate in either Hong Kong or Shanghai is emerging as the clear winner among Chinese equities this year.

Property companies account for eight of the 10 best performers on MSCI Inc.’s measure of offshore Chinese shares in January, while developers have rallied largely around industry groups on the Shanghai benchmark. Shimao Property has taken the helm in Hong Kong, rocketing 28%, while China Vanke Co. has soared 22%.

The driving factors behind the optimism are bets that sales will rebound and local governments will relax restrictions aimed at cooling home prices, according to Credit Suisse Group AG, which said last week mainland Chinese investors were especially keen on Hong Kong-listed Chinese developers.

Cheap valuations were another impetus-giving factor, according to Credit Suisse. Shimao trades at 10 times reported earnings, while Vanke has a multiple of 14.6. Compare that with the 55.6 times commanded by Tencent Holdings Ltd.

Adding fuel to the rally: China’s north-western city of Lanzhou said Friday it removed home-purchase restrictions in three districts, while Country Garden Holdings jumped as much as 9.7% on Monday after announcing its 2017 contracted sales totalled 550.8b yuan ($84.9b), exceeding the 500b yuan target it provided in August.

“Developer stocks’ earnings performance is confirmed and their valuations safe -- that’s why we’re seeing a sustained rally,” said Van Liu, a Shenzhen-based analyst with Guotai Junan Securities Co. "We believe there’s room for further loosening to offset downward pressure from the tight monetary policy in 2018, especially in top-tier cities.”

December sales were already better than expected, particularly among larger developers, as effects of property curbs diminish and built-up was released, Liu said, adding that homebuilders with solid profit growth and better cost controls would outperform this year.

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