China property crisis: Stimulus-fuelled rally may not help

The gains in Chinese developers' bonds and stocks Tuesday are at risk of becoming yet another false dawn as investors seem unconvinced that Beijing's latest funding plan for 50 real estate firms can help turnaround the embattled property sector.

The country's property crisis has been weighing on the economy for months, and some investors are doubtful about a speedy resolution as the financing plan stops short of being a directive to banks to extend loans to developers. While the measure may help better mood, there's concern that the list of developers eligible for a range of financing would mainly comprise state-owned firms and distressed ones would be excluded.

"The white list itself is unlikely to lead to concrete improvements in developers' financing unless there are more tangible actions," said Leonard Law, senior credit analyst with Lucror Analytics Pte. Also, "financial institutions have their own considerations and the support often comes with strings attached."


China investorshave tended to sell into rebounds. Stock rallies have lasted an average of only two days with a 4% relative return since last year, according to JPMorgan Chase analyst Karl Chan.

Tuesday's advance also lacked lasting power. A Bloomberg gauge of China developer stocks pared a gain of 7.6% to about half at the close, while a 27% jump in Sunac China Holdings - the first major builder to reach a restructuring agreement - trimmed gains to 12%. The Hang Seng Index, which was earlier lifted by the news, reversed gains of as much as 1.6% to end 0.3% lower. Bloomberg