In an effort to bolster the struggling property sector and counter its adverse impact on the economy, China has introduced new measures to shore up the ailing sector. These measures have prompted a notable surge in Chinese stocks with particular surge noted in real estate stocks.
The Hang Seng China Enterprises Index logged a substantial gain of up to 3.6% on Sep 4, with prominent property companies such as Longfor Group Holdings Ltd. and China Resources Land Ltd. leading the upward trajectory, per Bloomberg. Notably, shares of the in-focus struggling developer, Country Garden Holdings Co., witnessed a surge of 19% on Sep 4.
Furthermore, Bloomberg Intelligence’s developer shares indicator saw a remarkable surge of over 8%. Alongside, the CSI 300 Index, which tracks onshore China shares, also staged a rally.
Heightened Efforts to Address Property Market & Economic Woes
There have been a series of piecemeal measures previously implemented to bolster the housing market that led to limited success. In this latest wave of changes, the Chinese government has lowered the minimum down payment and eased mortgage restrictions for certain homebuyers in major cities like Beijing. Notably, these adjustments have resulted in a surge in home sales in the largest cities over the weekend, following the relaxation of mortgage rules.
Government looks to use up 2023 special bond quota by September. More rate cuts are likely in the cards. China’s state banks are leaving no stones unturned to boost consumer spending, directed by policymakers. These banks are considering lowering deposit rates for at least the third time in a year, according to people familiar with the matter, as quoted on Bloomberg.
China’s central bank surprised the market by announcing its second key policy rate cut in three months on Aug 17, 2023, indicating a heightened commitment to stimulate the struggling economic recovery. However, the one-year LPR was lowered by 10 basis points to 3.45% from 3.55% on Aug 21, a smaller cut than most economists predicted.
Can the Rally Last?
The positive impact of these measures is evident in Beijing, where over 1,800 new homes were sold in a single day, surpassing the total for the entire month of August. Similarly, some housing projects in Shanghai experienced a surge in transactions, indicating the potential effectiveness of the policy adjustments.
Analysts from JPMorgan Chase & Co., including Karl Chan, anticipate the rebound in sales for tier-1 cities might be short-term in nature, as quoted on Bloomberg. While this initial momentum might subside, these changes are expected to stabilize sentiment, which is crucial in preventing further deterioration.
Frequent Policy Boost to Keep Up the Upbeat Mood?
The launch of a series of new stimulus measures by Beijing has booted hopes for a more sustainable rebound for Chinese stocks. Although concerns remain regarding China’s structural economic slowdown, the frequent introduction of new measures has managed to lift overall market sentiment.
However, the optimism is pretty cautious in nature. Zhi Wei Feng, a senior analyst at Loomis Sayles Investments Asia Pte., suggested that it might be premature to anticipate a sustained recovery, as indicated on the Bloomberg article.
ETFs in Focus
Against this backdrop, below we highlight a few China ETFs that offer lower P/E ratios. These ETFs have a lower P/E ratios than the 17.86X P/E offered by the S&P 500.
Global X MSCI China Utilities ETF CHIU – P/E 8.98X
Global X MSCI China Materials ETF CHIM – P/E 9.41X
SPDR S&P China ETF GXC – P/E 10.38X
iShares China Large-Cap ETF FXI – P/E 10.62X
iShares MSCI China ETF MCHI – P/E 10.89X
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iShares China Large-Cap ETF (FXI): ETF Research Reports
SPDR S&P China ETF (GXC): ETF Research Reports
iShares MSCI China ETF (MCHI): ETF Research Reports
Global X MSCI China Materials ETF (CHIM): ETF Research Reports
Global X MSCI China Utilities ETF (CHIU): ETF Research Reports
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