Hedge funds bet on turnaround in unloved China property sector
HONG KONG, Feb 27 (Reuters) - Some large hedge funds and investors are accumulating long-shunned China property stocks at low prices, anticipating lucrative returns when the sector recovers from its prolonged crisis.
Investors said recent positive signs, from improving home prices in top cities to industry leader China Vanke's recapitalization plan, suggest this year will be the turning point for the real estate market.
To be sure, they are selective and have set their sights on leading state-backed homebuilders and China's largest online property brokerage.
"We have added some large state-owned developers recently, based on the logic of sector turnaround and winners take all," said Wang Qing, chairman at Shanghai Chongyang Investment Management, which runs $5 billion.
"Land sales are recovering in first-tier cities, and we noticed that only these few real estate developers are still actively buying land," he said, adding that meant these builders were taking a larger market share.
Chinese property has been a top short-selling target through the debt-ridden sector's downturn for more than three years and as a raft of privately-owned property giants, including Evergrande and Sunac China, went bankrupt.
The shift in sentiment indicates investors are rebuilding confidence in the sector after the industry consolidation and massive measures introduced by China since September to stabilize the slumping housing market.
Hong Kong-based Golden Nest Capital is also dipping into shares of some state-owned developers.
"You could say that the sales volume of new homes has declined by half, but the number of developers has decreased even more," said Stanley Tao, CIO at Golden Nest Capital Management.
As the sector stabilizes, the rebound in these overlooked stocks will be significant, Tao said.
Hong Kong-listed mainland property stocks surged more than 15% this month, making it one of the top performing sectors just behind tech stocks.
KE Holdings , , China's Zillow-like real estate platform, has become a darling among Asia's top hedge funds.
Hong Kong's $9 billion Aspex Management built new positions in U.S.-listed KE Holdings by adding 6.51 million shares in the fourth quarter of 2024 with a market value of about $120 million as of the end of 2024, according to its filing with the U.S. Securities and Exchange Commission.
WT Asset Management, which manages $4 billion, boosted its stake in KE Holdings by 2.2 million shares worth more than $40 million in the fourth quarter as well.
KE Holdings is benefiting from robust sales of secondary homes in big cities after the Lunar New Year and tech advancements, Griffin Chan, a property analyst at Citi Research said in a note this week.
Cash-strapped top homebuilder Vanke's bailout by the government in early February further boosted sentiment as many view it as a landmark event that greatly reduces the risk of defaults by another major developer.
Shares of KE Holdings and property developers rebounded sharply in February, although many have lost more than 80% over the past three years.
"I do think we are close to a turning point on property stocks," said Jon Withaar, head of Asia special situations at Pictet Asset Management.
Jon said his entry into property stocks depends on whether there will be more government-backed restructuring and on property price trends.
Obviously, the recovery is at the initial stage, and many smaller cities are still struggling with unsold homes. Investors remain divided on the outlook for real estate.
"It's more about trading opportunities," said Wang Qi, CIO at UOB Kay Hian Wealth Management.
"It's like a flash in the pan, but even a flash in the pan might present three to six months of opportunity. These stocks are very cheap and could rise 50% - that's normal," he said.
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