Nomura view on 內房

Many investors have been asking why the property sector share price has rebounded in the past two weeks. We believe:

 It was a company-specific rather than sector-wide rally (Fig. 1), with Evergrande +64%, Sunac +21%, Country Garden +20% and Longfor +13%, while others were largely flat vs Hang Seng Index. This is consistent with our previous suggestion to stay defensive on the sector in May but look for specific opportunities, such as Evergrande (Heading in the right direction, 25 April) and Sunac (Unlock the huge and valuable land bank, 17 May)

 It was driven more by positive-biased sentiment and flows than physical market improvement:

We remain cautious on credit and sales growth outlook for the sector, and recommend being selective on stocks. We prefer developers with strong sales momentum, potentially good interim results and cheap valuation. Our top picks include CR Land (1109 HK), Sunac (1918 HK), and CIFI (884 HK).