Arthur Budaghyan predicts decline in Chinese property stocks

Recently, investors in the stock market have witnessed a rise in Chinese property shares, sparking some optimism. However, experts are cautious about the sustainability of this surge in the long term. The limited impact of the home purchase program introduced by the People’s Bank of China (PBoC) is a key reason behind this skepticism, as it is unlikely to reverse the downward trend in the property sector. Analysts foresee continued challenges for property developers in terms of profitability over the next six months, which could exert pressure on their stocks. Moreover, concerns persist regarding weak domestic consumption, which remains a significant issue for the Chinese economy.

Arthur Budaghyan, a strategist at BCA Research, has indicated that Chinese property stocks are anticipated to decline in the coming four to six months. While short-term market movements may be influenced by misconceptions, Budaghyan stressed that fundamental factors will ultimately dictate stock performance over the medium term. Despite the Chinese government's persistent efforts to stimulate the property market and economy over the past two and a half years, these endeavors have not yielded the desired outcomes. For example, a recent injection of 1.88 trillion yuan into property developers did not succeed in boosting property prices and sales.

In response to the ongoing challenges in the property market, the PBoC has unveiled a program to provide 300 billion yuan in funding to assist state-owned enterprises (SOEs) in purchasing unsold homes. This initiative aims to alleviate the excess inventory in the property market. Under this program, the central bank will back national banks by covering 60% of their lending, requiring the banks to contribute an additional 200 billion yuan to SOEs. The total funding earmarked for this purpose totals 500 billion yuan.

While the recent surge in Chinese property shares has generated optimism among investors, experts caution that this growth may not be sustainable in the long run. Challenges in profitability for property developers, coupled with concerns about weak domestic consumption, continue to pose significant hurdles for the Chinese economy. The initiatives undertaken by the Chinese government and the PBoC aim to address these challenges, but their effectiveness remains uncertain. Investors are advised to closely monitor the evolving situation in the Chinese property market to make informed decisions regarding their investments.