As US Homebuilders Crash, China Property Developers Set To Surge As PBOC Sends “Clear Easing Signal”

As US Homebuilders Crash, China Property Developers Set To Surge As PBOC Sends “Clear Easing Signal”

Over the weekend, we said that as a major divergence has emerged between China and the US, where the former is now actively easing – ostensibly to support the country’s reeling property market but also to prevent a complete collapse in GDP, by cutting rates and injecting gobs of new credit – and the former is about to undertake a major tightening cycle, a trade has emerged to capitalize on this divergence whereby one should pair trade a long in beaten down Chinese property developers while shorting US homebuilders…

… this trade is starting to outperform, with US homebuilders tumbling on Tuesday with some builders sinking by the most since May, amid fears of a slowdown in the property market due to higher years.  The S&P Supercomposite Homebuilding Index plunged by as much as 5.2% with all members are trading lower on Tuesday. KB Home was down as much as 8.5% for its biggest intraday decline since May 2021,  LGI Homes down by as much as 7.8%, Meritage Homes lower by as much as 6.4% for its worst intraday decline since May 2021, and Lennar sliding as much as 6.3% to also notch its sharpest decline since May.

Meanwhile, as Bloomberg’s Wes Goodman writes, China stocks may draw some support amid the global market rout, especially if the yuan slides after the PBOC said it plans to use more monetary policy tools to spur the economy. China bonds jumped on Tuesday prior to the announcement, though still supported by the outlook for more easing. The yuan also weakened as the central bank said it will not allow one-way moves in the currency, while Goldman strategists said that the PBOC press conference sent “clear policy easing signals.”

The larger Asia stock market is starting under a cloud following the U.S. rout, triggered by the relentless advance in Treasury yields and forecasts for Fed tightening, while Asian currencies may lose some appeal as the dollar rises. However, keep an eye on China’s property developers now that Beijing has made it clear it will backstop the housing sector and provide support to prevent China’s largest property developer, Country Garden, from becoming the next Evergrande.

And sure enough, a real-time update of the chart shown above shows that the relationship between easing China and tightening US may have now troughed …

… and may be on its way to becoming what we dubbed the “trade of 2022.”

Tyler Durden
Tue, 01/18/2022 – 22:50

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Author: Tyler Durden

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