Chinese property equities surged overnight, with the Bloomberg Intelligence real estate index jumping as much as 11%, fueled by speculation of an imminent high-level government meeting aimed at reviving the country's struggling real estate sector.
Unverified reports suggest Beijing may assemble a policy conference next week reminiscent of the 2015 Central Urban Work Conference, which triggered large-scale shanty-town redevelopment and infrastructure stimulus.
"Since the founding of the republic in 1949, Chinese senior leadership held only four "urban work conferences" at the central government level: 1962, 1963, 1978, and 2015. Thus, if the reports turned out to be true, it would be closely watched by the market given policy direction implications," Goldman Sachs analyst Fred Yin told clients.
China's property sector has been locked in a downward spiral for the past four years. Major developers have defaulted on their debt, while Beijing has cracked down on speculation amid persistently weak sentiment among homebuyers. Although officials have implemented a range of countermeasures (read: here) to slow the decline, none have successfully established a bottom. Home sales fell again in June, prompting renewed calls for stimulus. This report suggests a potential shift in policy direction from President Xi Jinping, signaling mounting political pressure.
Hao Hong, chief investment officer at Lotus Asset Management, noted, "The central government really needs to do something, especially after the disastrous June sales."
In markets, the Bloomberg Intelligence index of the nation's real estate stocks jumped 11%, while Goldman's China-H Real Estate basket gained 7.4%. Individual stocks, Logan Group Co. skyrocketed 85% in Hong Kong, and Sino-Ocean Group Holding Ltd soared 37%.
Reports that Beijing is considering dusting off its 2015 playbook to support the property market imply President Xi's leadership is attempting to quell growing dissent. The larger question is whether another shanty-town redevelopment stimulus package will have the same effect as it did a decade ago.
