Investing

Real Estate Stocks Roar

Published

September 6, 2023

Key News

Asian equities were largely higher except for Taiwan and South Korea.

China and Hong Kong opened down, though the former managed a small gain and the latter a small loss. Hong Kong shares were not off nearly as much as US-listed China stocks yesterday, which should see a rebound in US trading today. The Securities Times, a government financial media outlet, had a front-page article highlighting the city of Shenyang canceling home-buying restrictions and advocating for other cities to follow suit. The article stated, “Restrictive policies such as purchase restrictions, loan restrictions, and sales restrictions were introduced in the past to curb house speculating during the overheating stage of the real estate market, and it is no longer appropriate to continue to implement them under the new situation of major changes in supply and demand relationship in the real estate market.” It advocated for “urgent” policy support to eliminate “restrictive policies”.

The real estate sector was the top sector in both Mainland China, gaining +1.91%, and Hong Kong, gaining +2.32%. Hong Kong-listed Country Garden (2007 HK) at +20.79% and Suanc (1918 HK) at +68.35% as the 2^nd and 4^th most heavily traded securities by value. Obviously, short sellers were run over, though both stocks saw net buying from Mainland investors via Southbound Stock Connect. After the close, a Mainland media source noted that Shanghai second-hand house sales increased to 14,000 sold, which ended a streak of “downward trend” while weekend sales and viewings increased significantly. Hangzhou joined the list of cities to reform mortgage rules. Reform efforts are starting to have an effect, though we’ll have more data once September data is released. I am cautious about real estate stocks as the companies are apt to sell more stock in order to fund bond coupon and principal payment obligations.

Tencent (700 HK) -0.43% and NetEase (9999 HK) -1.99% on Mainland media calling for kids not to be addicted to video games, though we’ve seen many time restrictions implemented already. Otherwise fairly quiet on light volumes. Kweichow Moutai +0.12% after launching a liquor-infused coffee with Luckin Coffee has garnered Chinese social media attention. Yes, iPhones can’t be owned by Chinese government officials, though it doesn’t feel like a big deal. Huawei’s latest mobile phone launched with a 7nm chip made by Semiconductor Manufacturing has made some noise amongst China watchers. Such a sophisticated chip was not thought feasible due to US export restrictions. I’m not 100% sure, though.

In a recent conversation, it was noted how well Chinese bank stocks and Treasury bonds have performed relative to US bank stocks and US Treasury bonds. Unless you look at the data, you would not know the above statement is factually accurate. Some chatter about President Xi not attending the G20 is an indication of China-India relations souring, though Modi and Xi just met at the BRICs conference. Premier Li’s speech at the Asean Plus Three meetings included a reiteration of a 2023 GDP target of 5%.

The Hang Seng and Hang Seng Tech fell -0.04% and -0.4% on volume -8.44% from yesterday, which is 81% of the 1-year average. 212 stocks advanced, while 266 declined. Main Board short turnover fell -33.27% from yesterday, which is 82% of the 1-year average, as 17% of turnover was short turnover. The value factor outperformed the growth factor as small caps outpaced large caps. Real estate and financials were the only positive sectors, +2.3% and +0.92%, while healthcare -1.58%, industrials -0.75%, and communication -0.67%. The top sub-sectors were real estate, media, and semiconductors, while pharmaceuticals, healthcare equipment, and consumer durables were the worst. Southbound Stock Connect volumes were moderate/high as Mainland investors bought $531 million of Hong Kong-listed ETFs and stocks with energy giant CNOOC, Sunac, and China Construction Bank moderate/light net buys while Tencent, PetroChina, and East Buy were small net sells.

Shanghai, Shenzhen, and STAR Board gained +0.12%, +0.08%, and +0.43% on volume -4.24% from yesterday, which is 87% of the 1-year average. 2,507 stocks advanced, while 2,132 declined. Value and growth factors were mixed as small caps outpaced large caps. The top sectors were real estate +1.91%, financials +0.24%, and tech +0.19%, while healthcare -1.24%, communication -1.11%, and industrials -0.72%. The top sub-sectors were real estate, aerospace, and fine chemicals, while shipping/marine, aviation, and pharmaceuticals were the worst. Northbound Stock Connect volumes were light as Mainland investors bought $5 million of Mainland stocks with ZTE, CATL, and Wuxi AppTec moderate/small net buys while Longi was a moderate net sell, Wuliangye and Mindray were moderate/small net sells. CNY and the Asia dollar index were off small versus the US dollar. Treasury bonds were sold along with steel while copper gained.