Property, building material companies buoyed as policy measures ease market uncertainty

Chinese mainland stocks rallied the most since November on Wednesday led by property and building material companies, as government

policies aimed at the real estate sector eased uncertainty and more investors poured funds into the A-share market.

The benchmark Shanghai Composite Index rose by 4.26 percent to close at 2,849.68 points, the biggest gain since Nov 4. The Shenzhen Component Index increased 4.77 percent, while the startup index ChiNext climbed by 4.27 percent.

An index that tracks the country's listed real estate developers in both Shanghai and Shenzhen also rose 8 percent, as more than 50 real estate shares climbed by the 10 percent daily limit.

Chen Shen, chief property analyst at China Securities Co Ltd, said real estate shares enjoyed a strong day after investors had taken comfort from the slew of policies aimed at easing the market, and that house prices also remained attractive.

The People's Bank of China said on Monday that the required reserve ratio, the amount of cash that banks must hold as reserves, would drop by 0.5 percentage point effective Tuesday.

Zhou Xiaochuan, the central bank's governor, said that mortgage lending should be further encouraged, and it remained a safer option for lenders compared with corporate lending.

"Cutting the RRR at a time when the real estate market has been popular shows that the central government is eager to stabilize the economy," said Chen.

"The prices of real estate shares are also at a very attractive level after three stock market crashes from June last year."

The central bank and the China Banking Regulatory Commission announced last month that down payments for first-time homebuyers would be reduced from 25 percent to 20 percent in a bid to revive China's urban housing market.

Also that month, the Ministry of Finance, the State Administration of Taxation, and the Ministry of Housing and Urban-Rural Development jointly issued a document to reduce the tax burden on homebuyers.

"Sales in second-tier cities will benefit most from the popularity of the housing market, and listed real estate companies in these cities remain the most popular among investors," said Chen.

He said property prices in first-tier cities such as Beijing and Shanghai have remained high, and their growth rate cannot maintain in the future as it has been in the past six months.

Third-tier or small cities are least likely to benefit from the additional liquidity released from the RRR cut as people are flowing to bigger cities, he added.

Pei Shaolei, a business director at A-share listed property developer China Fortune Land Development Co Ltd, said that real estate shares have remained popular among investors as the government still regards urbanization as a key economic priority, especially as the rest of the economy slows.

"Led by the first-tier cities, real estate markets in second- and third-tier cities will improve," said Pei.

Net inflow of capital to A-share market last week totaled 73.5 billion yuan ($11.22 billion), China Securities Investor Protection Funds data showed.

The daily amount of northbound trading through the Shanghai-Hong Kong Stock Connect program totaled 3 billion yuan on Wednesday.

The number of new stock investors also climbed, by 18.9 percent, in the week ended February 26 from the previous week to 423,600, according to China Securities Depository and Clearing Corp Ltd.

Wang Yi, a Hangzhou-based brokerage business department manager at China Securities Co Ltd, said market expectation remained that share prices had effectively bottomed out for now, so more investors and funds are now poured money in.

"But 2016 still has its uncertainties at home and abroad, and many Chinese individual investors will chase rising prices rather than buy when prices are cheap," said Wang.

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(China Daily USA 03/03/2016 page15)


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