Christopher Wood of Jefferies in his latest GREED & fear report said he still has 19 per cent of his India equity portfolio in property stocks. Wood said the potential upside in India residential property, as a secular theme, is demonstrated by a comparison of where China was in 2005, what happened there in the subsequent years and what could happen in India.
He noted that India taking out excess capacity in residential property markets was perhaps the best example of a cleansing liquidation that GREED & fear has ever seen. The Global Head of Equity Strategy at Jefferies said that the consolidation in India was triggered primarily by two events: demonetisation and the passage of the Real Estate Regulation and Development Act-- both of which occurred in 2016.
This is against China where the central government has still not come up with a policy directly to address the issue of uncompleted residential property projects which is the biggest reason, in GREED & fear’s view, for the ongoing declining in primary property sales which is accelerating the financial squeeze on developers.
In the case of China, Jefferies said the pre-sales are running well below pre-pandemic levels and, more importantly, at a level which puts the financial survival of a growing number of private property developers at risk.
"Property pre-sales proceeds, including deposits, advance receipts, and mortgages, fell to yuan 6.5 trillion last year, compared with yuan 8.9 trillion in 2019 before the pandemic, according to the official National Bureau of Statistics data. This pain continues to be best reflected in market terms by the fact that Chinese property developers, via their offshore dollar bond issuance, now account for only 6 per cent of the Bloomberg Asia USD High-Yield Bond Index compared with a peak of more than 40 per cent in 2020," he said.
The correlation between MSCI China and the MSCI China property index has increased since 2022 is reflecting the renewed importance of the property market in terms of driving investor sentiment there, Wood said.
In his ex-Japan long-only equity portfolio, Wood has 8 per cent weightage exclusively for two property stocks namely Macrotech Developers (4 per cent) and Godrej Properties (4 per cent).
Also read: Stock recommendations by analyst for February 23: Midhani, L&T and Nestle
Also read: Rs 2,00,000 crore market value! Jio Financial shares rally, beat IRFC, JSW Steel in m-cap race