What we think about Rally China

While the share price rise has led to overpricing for companies such as China Jinmao and Vanke, we continue to see rising valuations for major state-owned developers, including China Overseas Land & Development and China Resources Land. Both names remain our preferred sector picks given their better asset quality and stronger balance sheets.

Additional policies mainly include: 1) reducing the down payment rate for first and second homes to 15%-20% across China; 2) removal of purchase restrictions in top cities such as Guangzhou; and 3) increasing the central bank’s funding mix to reduce inventories to 100% from 60%.

These measures boosted new home sales by more than 20 percent year-on-year in tier 1 and 2 cities during the October 2024 national holiday, according to the China Academy Index. That said, the longevity of the demand recovery remains clouded by low house prices, and lower-tier cities require longer cycles to see significant improvements in our view.

For housing supply, despite a slow start in absorbing unsold units, we expect local authorities to accelerate the buying process in the coming months. This will be driven by more clarity on funding sources and developers’ acceptance of further deep reductions in project values. Consequently, we anticipate that China’s housing inventory will moderate from 2025 onwards.