(April 22): China’s beaten-down property market is likely at a turning point that will help the nation’s stocks outperform their emerging-market peers, according to JPMorgan Chase & Co.
A recovery in Hong Kong’s real estate market is spilling over to major mainland cities, while a delayed wealth effect from the rebound in Chinese shares is helping to revive housing demand, said Rajiv Batra, a strategist at the company in Singapore.
The latest batch of housing numbers backs up a positive view. China’s new-home prices fell again in March but the decline was the slowest in about a year, government data showed last week. Prices of used homes climbed in 13 mainland cities last month, the most in almost three years, the data showed.
“After five years of correction in China, we may now be approaching a turning point with early signs of recovery emerging in Chinese property space in March,” said Batra, who’s head of Asia and co-head of global emerging markets equity strategy. “We are relatively positive on China outperformance to other emerging markets.”
MSCI Inc’s gauge of mainland equities has risen almost 4% over the past month, erasing most of the losses it made following the outbreak of the Iran war. Despite that rebound, the index is still down 2.5% for the year, trailing behind the 15% gain in MSCI’s broad emerging-market equity gauge.
See also: JPMorgan aims for China approval of active ETF launch this year
One of the principal drivers of Chinese outperformance is likely to come from the reviving property market, Batra said. “If Hong Kong is improving, people will try to extrapolate and the first easy place to extrapolate is China’s tier-one cities,” he said.
The delayed wealth effect should help the property market recover, and another positive is that housing has become the most affordable since 2016 based on the average price-to income multiple, he said.
JPMorgan isn’t alone in turning more positive on mainland shares. Chinese stocks are poised to gain 10% by year-end as Beijing’s supportive policies drive growth and valuations remain discounted, asset manager Stephen Jen at Eurizon SLJ Capital in London said last week.
See also: CATL share sale’s tightening discount shows China tech momentum
There are a number of other positives for Chinese shares in addition to the reviving property market, JPMorgan’s Batra said.
Mainland equities are set to benefit from progress in robotics, biotech innovation and adoption of artificial intelligence, while they should also gain from government measures to improve shareholder returns and tackle the price wars that have driven down profitability in some industries, he said.
Uploaded by Liza Shireen Koshy
