Beneficiaries of looser Chinese monetary policy

Since early December, China’s official monetary policy stance has been “tight”, as described in this Red Cat Journal article on China’s monetary policy tightening. Although inflation, particularly for food, remains a concern in China, recent statements by high-ranking government officials suggest there could be scope for more flexibility in monetary policy than what might be expected by the label “tight”.

While the magnitude of the weakening in the U.S. economy remains unclear, the risk of a knock-on effect on China’s economy is rising. China’s export growth may take a hit. The World Bank, in early Feb., lowered its estimate for China’s 2008 GDP growth to 9.6%, from 10.8%. Other estimates for China’s 2008 GDP growth range from 8-10%. All point to a slow-down from the 11.4% registered in 2007. The recent winter storm in China adds another near-term negative to the economic outlook. As a result, there has been increasing speculation in the investment community that China may loosen the monetary policy reins as an insurance policy against the potential for a more significant slowing in the Chinese economy.

Were the markets to receive a clear sign that China has shifted its monetary policy stance, listed property developers would likely rally. Investing in the Chinese property developers is not for the faint of heart as these shares are volatile. In addition, basing one’s investment strategy solely on predicting changes in monetary policy is probably not a good idea. However, here are two property developers that could benefit from a change in monetary policy:

  • Shimao Property (0813.HK): Shimao is a leading brand in the premium residential market. The company focuses on high-end residential, commercial and 5-star hotel properties. It has expanded from projects in Shanghai to the wider Yangtze River Delta, Beijing, Wuhan and Harbin. It is also undergoing a restructuring process to clarify the relationship with its sister company Shanghai Shimao (823.SH), listed in Shanghai.
  • Agile Property (3383.HK): Agile is one of the best known brands in the Pearl River Delta region of Guangdong, in the south of China. The company primarily develops large-scale residential projects. Guangdong’s property market has seen more near-term weakness than other parts of China, but this could change if monetary policy shifts.