International Investors Demand Concrete Steps to Restore Confidence in Chinese Real Estate Industry

However, a sustainable recovery will depend on policymakers’ ability to fulfill their so far vague promises. “International investors may have started buying more Chinese stocks hoping that the Politburo would announce a significant stimulus, but we would wait until we see more specific measures,” said Tara Hariharan, General Manager of global macro hedge fund NWI Management LP.

The Struggling Real Estate Sector

The precarious situation of property developers’ balance sheets tops the list of risks. “Is real estate worth saving in China’s current economic model? Absolutely, and urgently,” said Qi Wang, the Chief Investment Officer (CIO) of MegaTrust Investment (HK), a Chinese fund manager specializing in domestic A-shares.

Mark Dong, General Manager of Hong Kong-based Minority Asset Management, has reduced his exposure to the real estate sector. “Sentiment is at its lowest, but a catalyst is missing. It seems there are no substantial measures yet to assist developers, such as bailing out struggling ones.”

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Waiting for Specific Measures

Jingjing Weng, head of Chinese equity research at Eastspring Investments in Shanghai, said last week’s rally was largely due to short covering. “The key is knowing when and what specific measures will follow,” said Weng. “Investors are still adopting a wait-and-see approach as they need to see a more sustainable recovery on Chinese stock markets before returning.”

Rob Hinchliffe, portfolio manager and head of global sector research at New York-based PineBridge Investments, said their exposure to China is lower than last year. “Investing is somewhat challenging in China, given some of the decisions made at the top. We are underweight in China overall now.”

A Crisis in the Real Estate Sector

Concerns about the debts carried by property developers have persisted for much of the past decade. The crisis occurred three years ago when worried authorities restricted developers’ borrowing and disrupted a business model that relied on loans and presales to finance construction.

Speculators brave enough to invest in the stocks and bonds of property developers last year were rewarded by the rally triggered by the Politburo’s assurances. But larger players believe this is not a basis for long-term investment given the fundamental problems facing developers.

“No one has confidence in how these companies will survive,” said a fund manager who manages an emerging market credit portfolio for a US asset manager, who declined to be named as he is not authorized to speak publicly.