Real-estate companies are leading declines among Chinese stocks traded in the U.S. this month, with SouFun Holdings Ltd. (SFUN:US) headed for the worst drop in two years, as a housing slowdown spurs concern that sales will slow.
SouFun, China’s biggest real-estate information website, has sunk 25 percent in June, the steepest monthly decline since July 2012. E-House China Holdings Ltd., a Shanghai-based property brokerage, has plunged 13 percent while online property listing website Leju Holdings Ltd. has lost 18 percent. The Bloomberg China-US Equity Index (HSCEI) rose 0.1 percent to 104.69 last week in New York.
China’s new-home prices fell in half the cities tracked by the government for the first time in two years. Sales growth at all three companies will be less than half the pace of 2013, analyst estimates compiled by Bloomberg show. Agents in Shenzhen are threatening to boycott SouFun over the cost it charges for listings, the South China Morning Post reported June 19, a week after Deutsche Bank AG cut the stock to hold, citing concern discounts on fees will erode profit.
“You’ll see price reductions, commission reductions and a market that’s weak with reduced levels of transactions,” Tim Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, which manages about $1.5 billion in assets, said by phone June 20. “A correction in housing tends to be an extended event, especially when there’s been excessive speculation and significant overbuilding.”
Yiwen Zhang, an investor relations representative at SouFun, didn’t respond to a request for comment made after regular business hours in Beijing last week.
The iShares China Large-Cap ETF (FXI:US), the largest Chinese exchange-traded fund in the U.S., slipped 0.7 percent to $37.83 last week. The Standard & Poor’s 500 Index climbed 1.4 percent to a record as investors speculated economic growth will accelerate.
China’s new-home prices fell in 35 of the 70 cities tracked by the government for the first time in two years, according to a statement by the National Bureau of Statistics June 18. That was the highest number since May 2012.
Deutsche Bank analysts led by Vivian Hao cut their rating on SouFun from buy on June 12, saying in an e-mailed research note that there is a “fair chance” the company will lower its 2014 earnings guidance because of its plan to discount some listing fees by 40 percent. SouFun hasn’t decided whether it will adjust its revenue guidance, Vincent Mo, SouFun’s chairman and founder, said in a conference call with analysts June 17.
The housing sector “is in need of a correction and the Chinese government is well aware of that,” Ghriskey said.
SouFun fell 3.9 percent to $9.01 on June 20. E-House (EJ:US) slumped 4.4 percent in the week to $8.17 and Leju tumbled 8.7 percent to $9.56.
SouFun’s revenue will increase (SFUN:US) 19 percent in 2014, according to the average of seven analyst estimates compiled by Bloomberg, compared with a 48 percent surge in 2013. Sales growth at E-House will slow to 24 percent in 2014 from 58 percent, and Leju’s rate will be 49 percent, from 96 percent in 2013.
The Hang Seng China Enterprises Index fell 1.2 percent to 10,395.45 last week. The Shanghai Composite Index (SHCOMP) dropped 2.1 percent to 2,026.67.
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