Chinese Property Stocks Turn Red-Hot in 2018 on Sales Optimism

(Bloomberg) -- A clear winner is emerging among Chinese equities this year, whether in Hong Kong or Shanghai: real estate.

Property firms account for eight of the 10 best performers on MSCI Inc.'s gauge of offshore Chinese shares in January, while developers have rallied the most among industry groups on the Shanghai benchmark. Shimao Property Holdings Ltd. has led the charge in Hong Kong, surging 28 percent, while China Vanke Co. has climbed 22 percent.

Behind the optimism are bets that sales will rebound and local governments will loosen restrictions that were 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.

Relatively cheap valuations were another draw, 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 northwestern city of Lanzhou said Friday it removed home-purchase restrictions in three districts, while Country Garden Holdings Co. jumped as much as 9.7 percent on Monday after announcing its 2017 contracted sales totaled 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.”

Sales in December were already better than expected, especially among larger developers, as effects of property curbs wane and pent-up demand was released, Liu said, adding that homebuilders with solid profit growth and better cost controls would outperform this year.

--With assistance from Sree Vidya Bhaktavatsalam

To contact Bloomberg News staff for this story: Ryan Lovdahl in Shanghai at rlovdahl@bloomberg.net, Zhang Dingmin in Beijing at dzhang14@bloomberg.net.

To contact the editor responsible for this story: Richard Frost at rfrost4@bloomberg.net.

©2018 Bloomberg L.P.

With assistance from Ryan Lovdahl, Zhang Dingmin