China Traders See Real Estate Boost, Zero Covid Resolution at October Party Meeting

Bruised from a tumultuous year, China’s stock investors are looking to capitalize on any possible policy changes at the twice-a-decade Communist Party congress next month.

A key strategy is to bet on more stimulus for the housing market as authorities seek to rescue the ailing industry. Bloomberg Intelligence expects some steps to complete stalled housing projects after the October 16 leadership meeting, which in turn may support the banking sector by reducing credit risks and increasing demand for mortgages.

With low expectations of an imminent Covid-Zero policy change, some investors are limiting their exposure to reopening equities. Société Générale SA prefers industrial and infrastructure stocks to consumer stocks ahead of the event.

“There will be more support for the real estate sector because if the real estate market doesn’t stabilize, the economy won’t stabilize and protecting growth is the number one political priority,” said Chi Lo, senior market strategist for Asia Pacific at BNP Paribas. Asset Management.

China’s stock indicators last week added to what have already been some of the world’s worst losses this year, as the Federal Reserve dealt a heavy blow to global markets.


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Having grappled with Covid lockdowns, a housing market downturn, and Beijing’s conflict with Washington over trade and political issues for months, investors are expecting the market to rebound once the leadership shakeup is complete and they settle. political priorities.


property bets

China’s vast real estate sector is in the throes of an unprecedented crisis, as Beijing’s deleveraging campaign since late 2020 has trapped even the nation’s largest developers. A gauge of developer shares has lost more than 30% this year, despite dozens of measures to revive demand, including easing home buying restrictions.

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Consumer sectors related to the property market may see a positive impact, according to Li Jin, deputy general manager of Ruiyi Investment. Furniture and decoration materials have led the declines in retail sales this year, falling by at least 8% in August from a year earlier.

As for the sector, past experience shows that the finance, food and beverage, communications and defense sectors have all beaten the markets in the month leading up to the event, Li Xing, an analyst at Yuekai Securities Co., wrote in an 18 note. of September.


covid zero

Overall, any boost to the broader market from the Party congress is expected to be modest, several analysts said, amid little chance of an early easing of Covid restrictions.

The MSCI China Index has typically generated around 2% returns in the month leading up to Congress in the past, according to strategists at Goldman Sachs Group Inc., who aren’t sure the gains can be repeated this time.

The gauge has lost about 20% this quarter, versus a loss of less than 5% for an index of global stocks.

To account for a possible extension of the Covid Zero strategy, Goldman Sachs and Nomura Holdings Inc. lowered their growth forecasts for China in 2023 below 5% last week.


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“If no positive news emerges on that front, the market could be disappointed,” said Jian Shi Cortesi, chief investment officer at GAM Investment Management. “We control exposure to name reopenings to hedge that risk.”

Meanwhile, China stepping up its rhetoric against Taiwan is another risk that may add to market volatility.

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Beijing has said it has the patience to one day bring Taiwan under its control, while US President Joe Biden has repeatedly vowed to defend the island in the event of an invasion, an event that could force American companies to reduce their presence in China.

While Wall Street firms see the odds of armed conflict in North Asia as low, they see tit-for-tat sanctions between the US and China disrupting the flow of finance and trade becoming increasingly probable.

Despite all the uncertainties, some market watchers remain optimistic that the leadership meeting could offer some lift for stocks.

“While there is no certainty that the zero-Covid policy will be relaxed after the CCP Congress, we hope to see a more forceful political response to the housing crisis,” SocGen strategists, including Frank Benzimra, wrote in a note to the CCP. Friday. “Therefore, it is not time to capitulate.”

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