China’s property fixes leave investors in suspense

“The China equity trade is back.” Or at least so says Société Générale, which reckons Beijing’s recent efforts to fix the property crisis has moved Asia’s biggest economy beyond the “confidence crisis” that dominated China’s market narrative in 2023.

A reasonable view? Given how China’s property stocks last week entered a technical bear market amid worries Beijing isn’t acting urgently or boldly enough to stabilize the sector, the jury is still out.

The US$7 trillion stock market rout reaching from a 2021 peak through January 2024 may be over but extreme volatility in Shanghai and Shenzhen markets continues to give investors pause.

Even so, “the market is starting to gain some confidence that the earnings recession is coming to an end, as the latest earnings season appears to suggest,” says Wei Yao, head of Asia-Pacific research at Société Générale.

“Unlike the revenue growth of 2% – 1% ex-financials – in 2023, the weakest since 2020, the consensus revenue growth estimate of 4% – and 7.5% ex-financials – for this year is closer to the GDP growth forecast and looks plausible, in our view,” Yao says, citing Beijing’s 5% economic growth target.

Others see similar upsides emerging. “We see China’s stocks gaining momentum, especially if stimulus policies meet market expectations,” adds Jonathan Fortun, economist at the Institute of International Finance in Washington DC.

The main driver is growing optimism that Xi Jinping’s government has finally come up with a strategy to stabilize the beleaguered property sector, which historically has generated as much as 25% of GDP.

Recent moves to revive the sector include prodding local state authorities to purchase unsold properties and reducing the amount home buyers need for a