CLSA expects 'flood' of China property bonds
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China's order for banks to transfer off-balance-sheet loans may lead to a "flood" of bond issuance from real estate companies, CLSA Asia-Pacific Markets said.
The China Banking Regulatory Commission said assets linked to wealth management products provided by trust companies must be shifted on to banks' balance sheets by the end of 2011. The "important tightening measure" puts a funding squeeze on local governments' special-purpose vehicles and the property industry, CLSA strategist Christopher Wood said.
"Property developers and local government-backed infrastructure projects were important beneficiaries of such funding," Wood wrote in his Greed & Fear report yesterday.
"These are precisely the areas the CBRC has been trying to curb lending."
Loans tied to "informal securitization", including wealth management products provided by trust companies, suggest that bank lending in the first half was 5.9 trillion yuan ($869 billion), 28 percent higher than official numbers suggest, Fitch Ratings said on July 14. The nation has targeted total lending of 7.5 trillion yuan for the year amid efforts to cool the economy and curb property speculation.
The regulator's "pre-emptive action" may help to prevent off-balance-sheet loans from running out of control, Wood said.
While the strategist advised so-called relative return investors to hold a neutral position on Chinese bank stocks that look "statistically cheap", he saw "better and more transparent stories" to invest in elsewhere in Asia, according to the report.
The Shanghai index has advanced 9 percent from this year's low on July 5 as investors speculated the government would ease property curbs and allow more lending to counter slowing growth.
Guotai Junan Securities Co said on Friday the recent rebound in China's stocks may be coming to an end because of growing inflation expectations and less likelihood the government will relax policy tightening measures.
