China home prices show more weakness

New home prices dropped in more cities across China during August compared to July, according to official data released this morning.

Chinese flag
Source: Bloomberg

The print from the National Bureau of Statistics showed that prices fell month-on-month in 68 cities, more than the 64 recorded in July. This is also the biggest slump since January 2011.

In August, we also saw average new home prices fall 0.59% month-on-month, the fourth straight month of declines, according to data from SouFun Holdings.

There are still no signs of a turnaround in the sector as we saw the weak sentiment extend from last month, when property developers showed wariness over slowing sales.

In August, land plots up for auction in Beijing were unsold for the first time in more than three years. This reflected a wait-and-see attitude amid heightened concerns over a property slump. Some developers resorted to offering buyback guarantees, but it looks like that has not been enough to stem the tide.

We’re likely to see some pressure in the interim on Chinese property stocks, such as China Resources Land, China Vanke, Beijing Urban Construction, and Financial Street Holdings. This could in turn weigh down indices such as the Hang Seng and China H-Shares in the short term.

Looking at China H-Shares, it looks poised for a break below the support level of 10,813 points after a period of consolidation. The MACD indicator currently reflects a bearish sentiment fuelled by the recent slew of soft macro data.

This suggests a possible retracement of China H-Shares to test its 100 DMA as its nearest support. The 10,523 point level will then be the next level of support. Beyond the short term, investors should watch out for a possible bounce back into a long-term uptrend once there are signs of the index being oversold, such as if the RSI indicator dips below 30.

China H-Shares Chart
Click to enlarge

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