China developers’ rally loses steam after some companies flag risks

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SHANGHAI -A recent rally in Chinese property stocks lost steam on Wednesday, after developers including Tahoe Group and Sichuan Languang Development Co <600466.SS> flagged investment risks, citing poor fundamentals.

China’s CSI300 Real Estate Index lost 1%, after hitting a two-month high in the previous session. The gauge had rebounded almost 20% from its November low on signs Beijing is marginally easing real estate curbs to prevent a hard-landing.

China has since October urged banks to meet developers’ “normal” funding needs, and allowed some real estate firms to issue more domestic bonds, fuelling hopes that Beijing is easing its deleveraging campaign against the sector. Regulators also recently showed support towards project acquisitions by big developers to aid weaker ones.

The recent rebound “is not backed by fundamentals,” said Cai Hongfei, analyst at Central Wealth Securities.

“The government is still hoping troubled developers rescue themselves,” he said, flagging that there will be a fresh wave of maturing debt next month.

Shares of Tahoe Group slumped 4.6%, having surged 21% over the past two sessions, after the company urged investors to pay attention to risks when investing in the company in an exchange filing.

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After defaulting on 49.6 billion yuan worth of borrowing at the end of November, Tahoe also said in the filing it was seeking solutions through a debt restructuring.

Sichuan Languang, which has defaulted on local bonds since July, also said in a statement on Wednesday the company had made little progress in restructuring its debt.

Its stock tumbled 7.8%, having surged some 67% this month.

“Currently, the company’s share price has sharply deviated from its fundamentals, and our business conditions continue to worsen,” Languang said.

But some investors disregard companies’ warnings.

Shares of Beijing Dalong Weiye Real Estate Development Co surged the maximum 10% allowed for any stock on the main board in China on Wednesday, bringing this month’s gains to 82%.

The share jump came despite the company warning that its stock valuation is three times the industry average.

“We hope that investors pay attention to market risks, make rational decisions, and invest prudently,” Dalong said.

(Reporting by Shanghai Newsroom; Editing by Gerry Doyle and Ana Nicolaci da Costa)