JP Morgan: The domestic property sector will continue to outperform the broader market in April. Bullish on China Resources Land (01109) and others.

JP Morgan released a research report saying that the prices of domestic real estate stocks rose this morning, with the market speculating that this may be due to the mainland authorities no longer requiring developers to report their compliance with the "three red lines" every month. However, the bank believes that this news alone is not enough to explain the market situation, as in fact, the authorities had already stopped requiring developers to report regularly several years ago (meaning this is not new information). However, the bank also cannot rule out that this rise may be driven by other market rumors, but did not have relevant information at the time of writing the report. As for the domestic real estate sector, the bank reaffirmed that its performance may continue to outperform the broader market until the March Two Sessions and the April Central Committee Political Bureau meeting. The bank is bullish on CHINA RES LAND (01109), CHINA RES MIXC (01209), and CHINA JINMAO (00817), but believes that LONGFOR GROUP (00960) offers the best risk-return in a policy-driven market. JP Morgan noted that the "three red lines" policy for the real estate sector was introduced in 2020 to guide developers to deleverage. This includes three indicators: (1) net debt ratio <100%; (2) asset-liability ratio excluding advance receipts <70%; (3) cash-to-short-term debt ratio >1 time. The bank pointed out that recent market rumors that the mainland authorities no longer require developers to report the "three red lines" monthly is not new information. For struggling private developers, whether or not there are the "three red lines", the core issue remains liquidity and survival. Simply relaxing financial indicators without additional funding from domestic banks cannot change the situation. For state-owned developers, theoretically this may allow them to leverage up to buy land. However, in the current market environment, the bank believes that SOEs are not keen on leveraging up, but will instead remain cautious and continue to comply with the "three red lines". Regarding the commentary published in the January 1st edition of "Seeking Truth" in mainland China, calling for industry policies to be introduced all at once rather than in a piecemeal manner, JP Morgan believes that this does not mean that the Chinese government's stance has fundamentally changed, but it is still a positive signal, indicating that the authorities may be considering further policy support, with the next window being the March Two Sessions and the April Political Bureau meeting.