China's Property Bubble

There are two main subjects of discussion when it comes to US views on China: the determination to tackle the supposedly undervalued remnimbi and a view that Chinas real estate market bubble is about to burst. Ahead of our Asian Securities Financing Forum in Hong Kong on Thursday, we will look at the extent to which funds are shorting Chinese property firms listed in Hong Kong (H Shares) including Agile Properties (3383), Sino-Ocean Land Holdings (3377), China Overseas Land & Investment (0688), China Resources Land (1109), Sun Hung Kai Properties (16) and Shui On Land (0272).

The famous short only hedge fund manager, Jim Chanos, is amongst the most vociferous of the US view that China can’t continue to artificially stimulate its property market. There are stories of unfilled developments mushrooming across China.

Does this explain why the demand to borrow Agile Properties (3383) has trebled since April to 6% of total shares? Funds who lend have taken the opposite view and have been adding to their holding over the same period. Agile had 66 projects in development in December 09 and has various bonds in issue paying at least 8% interest.

Sino-Ocean Land Holdings (3377) also has 6% of its shares in the hands of short sellers. This has been steady for the last 5 months.

China Overseas Land & Investment (0688) has 3% of its total shares on loan and has been as high as 4%. At present, this property firm is the 5th most shorted stock in the HSI.

In contrast, China Resources Land (1109) sees falling short interest from 3% down to less than 1% recently. The same is true off Sun Hung Kai Properties (16) where the demand to borrow has been reducing for the last 6 months. That said, some short sellers have re-opened their bets after the price recently spiked dramatically upwards.

Shui On Land (0272) is an interesting name at present. It recently announced the issuance of a convertible bond to, in part, finance a new project. Stock on loan has quadrupled to 4% of the company over the past 6 weeks but this could be prime broker’s anticipating demand from the convertible bond arbitrage community.

Betting against a bubble is never easy and being right but too early is a common problem for those seeking to profit from market corrections. There isn’t rampant short selling in the China property sector but three firms seem to have been picked out and it will be worth watching Agile Properties, Sino-Ocean and China Overseas Land.

You can register to attend the Asian Securities Financing Forum in Hong Kong this Thursday at www.dataexplorers.com/hongkong.
 

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