Tuesday, July 24, 2012

Worries over China property curbs hit stocks

The stocks and bonds rally for Chinese developers is expected to end lower as valuations become less attractive and hopes diminish for any loosening of property cooling measures, said analysts.

“The best performance for the China property sector is behind us and further gains will be difficult because of rich valuations and economic headwinds in the second half of 2012,” said Owen Gallimore, Head of Credit Strategy at ANZ (Singapore).

“It is doubtful if people want to buy beyond the top-tier names and into the mid-tier after such a strong rally.”

Moreover, after eight straight months of a decline, home prices in China grew in June. However, shares in the property sector began falling faster due to worries on how Beijing will react should sales volumes remain solid and prices start rising.

The Shanghai property sub-index dropped more than five percent on 21 July and has underperformed the broader market significantly.

“If strong sales continue for another six months, it is very likely that the government faces a dilemma again,” said William Fong, Fund Manager at Baring Asset Management.

He added that the government may implement another round of cooling measures.

“After the rebound we’ve seen, some investors might want to think ahead and position for that,” said Fong, adding that investors could withdraw from the market if they suspect more curbs are on the way.

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