Chinese stocks gain from Beijing’s property stimulus measures

Chinese stocks jumped on Monday after Beijing amped up efforts to reinvigorate the country’s ailing property sector but a European rally faded on fears of eurozone interest rate rises.

The CSI 300 index of Shanghai and Shenzhen-listed stocks closed 1.5 per cent higher and Hong Kong’s Hang Seng rose 2.5 per cent, led by sharp gains for developer stocks.

The moves came after Beijing announced policies to allow a dozen of China’s largest cities to reduce downpayments for homebuyers and encouraged lenders to cut interest rates on existing mortgages.

The Hang Seng Mainland Properties index advanced 8.2 per cent, with developers such as China Resources Land and Longfor Group up 10 per cent and 8.4 per cent, respectively.

The policies are designed to support China’s once-dominant property sector, which has struggled in the face of weak demand since the country reopened from three years of severe pandemic restrictions. The Fitch Ratings agency last week warned that annual new home sales in China could fall as much as 15 per cent.

“The Chinese government is keen to offer some stimulus to support the property sector, and if that is the case, that could mark an important shift in market sentiment,” said Mobeen Tahir, director of macroeconomic research and tactical solutions at WisdomTree Europe. “For investors, this is a positive sign that the necessary government intervention is likely to come through.”

Meanwhile, shares in Chinese property developer Country Garden surged 14.6 per cent after the company gained approval from its creditors over the weekend to restructure the repayment of an almost Rmb4bn ($550mn) bond that had been set to mature on Saturday. The developer will be able to repay the debt in a series of instalments over the course of three years.

Country Garden, a company that investors view as a gauge for the health of China’s property sector, had recently missed interest payments of $22.5mn on two $500mn international bonds, triggering a broader sector sell-off.

The uptick in China’s property sector follows stronger than expected economic data last week, when a private sector survey signalled that the country’s factory activity returned to expansion in August, reaching its highest level since February.

“Interest rates are being reduced further, stamp duty on stock trading has been cut and restrictions on home purchases relaxed,” said Rupert Thompson, chief economist at Kingswood Group. “These measures will not transform the economic picture overnight but do suggest the current intense gloom about China is overdone.”

Elsewhere in Asia, Japan’s benchmark Topix rose 1 per cent, hitting its highest level in 33 years, as global markets responded to softness in US jobs data released at the end of last week. US markets were closed for a holiday on Monday.

European markets initially made strong gains on the back of the China rally but fell back by the close after European Central Bank president Christine Lagarde avoided hinting at the future of eurozone’s interest rates at an event in London. That extended traders’ suspense ahead of the policy meeting next week.

The region-wide Stoxx 600 closed down 0.1 while France’s Cac 40 fell 0.3 per cent and the FTSE 100 finished down 0.2 per cent.

In government debt markets, the yields on 10-year German Bunds, a regional benchmark in Europe, rose as much as 0.03 percentage points to 2.58 per cent as traders struggled to place their bets on the outcome of the coming meeting. Bond yields rise as prices fall.

Investors also continued to react to Friday’s figures showing US unemployment rose to an 18-month high in August, putting pressure on the Federal Reserve to stop raising interest rates.

The central bank has lifted its benchmark federal funds rate to a 22-year high over the past year, as it tackles raging inflation, but noted that the possibility of further tightening would depend on economic data.

The dollar, which tends to weaken when investors expect lower rates, lost 0.2 per cent against a basket of six currencies on Monday.