JP Morgan expects the domestic property sector to continue outperforming the market before April, with a positive outlook on China Resources Land, CHINA RES MIXC, and CHINA JINMAO

JP Morgan released a report stating that the stock prices of domestic property companies rose this morning, with market speculation suggesting it may be due to the mainland authorities no longer requiring developers to report their compliance with the "three red lines" on a monthly basis. However, the bank believes that this news alone is insufficient to explain the market trend, as authorities had stopped requiring developers to report regularly several years ago (i.e., this is not new information). Nevertheless, the bank does not rule out the possibility that this increase was driven by other market rumors, but at the time of writing the report, it did not have relevant information.

Regarding the domestic property sector, the bank reiterated that its performance may continue to outperform the market until the March "Two Sessions" and the April meeting of the Central Political Bureau. The bank is optimistic about CHINA RES LAND (01109.HK), CHINA RES MIXC (01209.HK), and CHINA JINMAO (00817.HK), but believes that in a policy-driven market, LONGFOR GROUP (00960.HK) offers the best risk-return profile.

JP Morgan pointed out that the "three red lines" measures were introduced in 2020 to guide developers in deleveraging. The three indicators include: (1) net debt ratio <100%; (2) asset-liability ratio excluding advance receipts <70%; (3) cash to short-term debt ratio >1. The bank indicated that recent market rumors about mainland authorities no longer requiring developers to report the "three red lines" monthly are not new.

For struggling private developers, the core issue remains liquidity and survival, regardless of the "three red lines." Without additional funding support from domestic banks, merely relaxing financial indicators will not change the situation. For state-owned developers, theoretically, this may allow them to increase leverage for land purchases. However, in the current market environment, the bank believes that state-owned enterprises do not have a strong willingness to leverage up and will instead remain cautious, continuing to adhere to the "three red lines."

On January 1, a commentary published in Qiushi called for industry policies to be introduced all at once rather than in a fragmented manner. JP Morgan believes this does not indicate a fundamental shift in the Chinese government's stance, but it is still a positive signal, showing that authorities may be considering further policy support, with the next window period being the March "Two Sessions" and the April Political Bureau meeting