Property Shares Decline After Home Prices Slump: China Overnight
Stock Chart for E-House China Holdings Ltd (EJ)
SouFun, owner of China’s largest real estate website, fell from the highest level in two weeks. Property agency services E- House China Holdings Ltd. (EJ) dropped for the third time in four days. The Bloomberg China-US Equity Index (CH55BN) of the most traded Chinese shares in the U.S. was little changed at 102.76 yesterday. Casino operator Melco Crown Entertainment Ltd. (MPEL) climbed to the highest level in eight months.
China’s home prices dropped in a record 37 of 70 cities tracked by the government in March, the statistics bureau said yesterday. The release comes a week after a report from China’s statistics bureau showed first-quarter home sales declined 18 percent, as the government continued a two-year campaign to rein in property prices. The retreat may worsen a slowdown in the economy, which expanded at the slowest pace in 11 quarters during the January-March period, International Strategy & Investment Group said.
“The outlook for real estate equities is grim as long as the government won’t lift the restrictions, which we think will remain until 2013,” Donald Straszheim, the head of China research at International Strategy & Investment, said by telephone from Los Angeles. “The slowing trend in the Chinese economy will continue this year as housing prices fall and trade weakens.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., rose 0.1 percent to a one- month high of $37.54. The Standard & Poor’s 500 Index (SPX) slid 0.4 percent to 1,385.14, following the biggest advance in more than a month for the gauge on April 17, as Intel Corp. and International Business Machines Corp. drove a slump in technology shares after reporting results.
Beijing-based SouFun sank 1.8 percent to $18.20, extending its decline this month to 5.1 percent. E-House, based in Shanghai, dropped 0.7 percent to $5.99. China Real Estate Information Corp. (CRIC), a Shanghai-based property data and consulting firm, retreated 0.8 percent to $5.27.
China has toughened since 2010 requirements for down payments and mortgages, and imposed restrictions on the number of homes each family is allowed to buy.
China Real Estate plans to hold a shareholders’ meeting today in Shanghai to vote on an acquisition proposal by E-House, according to a statement March 21. E-House said on Dec. 28 that it agreed to acquire outstanding shares of Real Estate that it didn’t already own.
There’s a “mismatch” between the market and the government in their housing price expectations, Jinsong Du, a Hong Kong-based property analyst at Credit Suisse AG, said.
“What the investors worry about is the slowdown of the economy as a result of a cooler housing market,” Du said in an interview with Bloomberg Television yesterday. “The government is more concerned about a potential rebound in prices that will destroy all the efforts previously on cooling down the market.”
The Chinese economy expanded 8.1 percent in the first quarter this year, the slowest pace since the second quarter of 2009. The government in March cut the growth target to 7.5 percent for this year, after keeping it at 8 percent in the previous seven years.
There will be more cities in China reporting declines in home prices than those with gains in the next few months, Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.6 billion, wrote in a note to clients yesterday.“Home prices are always a lagging indicator in a housing cycle,” he said.
The Shanghai Composite Index (SHCOMP) jumped 2 percent yesterday to 2,380.85, snapping a two-day slump. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong added 1 percent to 10,896.89 after a two-day decline.
Melco, which operates in Macau, the only Chinese city where casinos are legal, surged 3.8 percent to $14.87 in New York, the highest close since Aug. 3. Its American depositary receipts traded 2.9 percent above its Hong Kong stock, which gained 2.6 percent to HK$37.40, the equivalent of $4.82 per share. The premium in the ADRs, each representing three Hong Kong shares, was the widest since April 12.
Macau’s gross gambling revenue may rise 22 percent in April from a year ago to more than 25 billion patacas ($3.1 billion), analysts led by Anil Daswani at Citigroup Inc. wrote in an e- mailed note to clients yesterday.
Spreadtrum Communications Inc. (SPRD), a Shanghai-based mobile- phone chip designer, plunged 7.8 percent to $13.67, the lowest level since Aug. 8.
Chardan Capital Markets analyst Jay Srivatsa yesterday recommended buying shares of Shanghai-based RDA Microelectronics Inc. (RDA) RDA is taking market share away from Spreadtrum as it undercuts its competitor’s pricing, said Srivatsa by phone, who has a neutral rating on Spreadtrum.
Analysts led by Bill Lu at Morgan Stanley downgraded Spreadtrum to equal-weight from overweight on April 16, meaning they expect the stock to be in line with the total return of the relevant country MSCI index over the next 12 to 18 months. They cut the price target for its stock to $18.31 from $26.50.
The Chinese yuan was little changed at 6.3028 per dollar in Shanghai yesterday, after rising the most in almost a month in the previous day, according to the China Foreign Exchange Trade System. The People’s Bank of China widened the yuan’s trading band versus the dollar to 1 percent on either side of the so- called fixing rate from 0.5 percent, effective April 16.
U.S. Treasury Secretary Timothy F. Geithner said China’s move reflects changes that are “very significant and very promising” at the Brookings Institution in Washington yesterday. China is showing a commitment “to this broad change in growth strategy, towards a growth strategy less dependent on external demand,” he said.
The Chinese yuan could be made fully convertible in five to 10 years and Russia’s central bank will include the currency in its reserves once that is achieved, First Deputy Chairman Alexei Ulyukayev said in an interview at Bloomberg’s headquarters in New York yesterday. Widening in the yuan’s trading band is “going in the right direction” in its moves to liberalize the yuan, Ulyukayev said.
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