(Bloomberg) -- China’s property stocks need a sustainable turnaround in order to foster investor confidence that this year’s broader equities recovery can maintain, or even increase its momentum. 

Equities bounced Friday after moves were announced to reduce the lending burden and shrink a housing glut. But analysts are already raising doubts on whether the package is sufficient to end the rout. 

Investors will be watching nervously to see if recent rallies in both property shares and the broader market can sustain. They may also want further easing steps from the authorities to bolster sentiment. 

A key concern is that acting to further reduce mortgage rates may do little to stop an epic slide in housing prices. Lending costs are already very low, and their recent tumble coincided with steep declines in new home prices. That contrasts with what happened in 2016 and in early 2023, when cheap mortgage costs saw prices pick up.

Real estate shares had remained depressed despite this year’s remarkable turnaround in the broader market. China’s broad market started lagging the US and other peers when property stocks began sliding in 2021, underscoring the sector’s importance. 

The authorities apparent determination to address the property issues has at least galvanized interest in the sector, sending volumes soaring.

The rally still has a long way to go before it could provide any real signal that the real estate sector is looking healthy, Recent gains still leave an index of property shares trading way below book value. 

The bond market offers a more optimistic take, with Chinese developers’ junk-bond prices climbing to be as close to par as they have been since the meltdown started in 2021. The debt rebounded strongly late last year but had shown signs of losing momentum. It may have regained that thanks to the latest burst of state support.

NOTE: Garfield Reynolds leads Markets Live in Asia. The observations are his own and not intended as investment advice. For more markets analysis, see the MLIV blog.

 

--With assistance from Daniel Curtis.

©2024 Bloomberg L.P.