Over two dozen Chinese real estate companies failed to meet the March 31 deadline to file their audited financial reports for the 2021 year, and for the companies that did file, the results reflected a year of challenges, reports the Wall Street Journal.
China Vanke Co, one of the giants in Chinese real estate, reported a 46% decline in net profits, the third time ever since the company went public in 1991; the chairman, Yu Liang, said it was a “wake-up call” and apologized to shareholders.
The shortcomings of Vanke, rooted in a model based on “aggressive investments with over-optimistic judgment of the market,” according to Yu, are reflective of the approaches and practices of the real estate market in China that led to Evergrande’s collapse and the subsequent turmoil.
Analysts believe that the growth the real estate industry has experienced has come to an end, with potentials for the market to worsen before it begins true recovery. Collectively, the 100 largest real estate developers had a 53% drop in sales in March compared to the same time last year and is the sharpest loss since last summer and the ninth month of losses in a row.
The COVID-19 outbreak that has impacted Shanghai, Shenzhen, and other major cities is expected to have heavy repercussions as well.
“In our view, the resurgence of Covid-19 will cripple the property market recovery given China’s zero-tolerance policy,” Shu Hui Woon, a credit analyst at Lucror Analytics, said.
Investing in Emerging Markets Ex-China
For investors who are looking for opportunities to diversify their portfolios through investment in emerging markets but either already have a separate, targeted China allocation or are looking to sidestep exposure to China, the KraneShares MSCI Emerging Markets ex-China Index ETF (KEMX) can be a good solution.
KEMX seeks to track the MSCI Emerging Markets ex-China Index, a free float-adjusted, market cap-weighted index that includes large- and mid-cap companies from emerging markets, excluding Chinese issuers. Securities contained are in the top 85% of their respective emerging markets.
To determine a security’s country, where it is incorporated and where it is listed are considered first. For securities that have a primary listing outside of the country it is incorporated in, any secondary listings, the geographic location of shareholders and operations, location of headquarters, its history, and which country investors associate with the issuer are all considered.
KEMX has an expense ratio of 0.23% with fee waivers that expire on August 1, 2022.
For more news, information, and strategy, visit the China Insights Channel.