(Bloomberg) -- Shares of some Chinese developers dropped in Hong Kong after they were made inaccessible to investors in the mainland, marking another setback for the beleaguered sector.
Shimao Group Holdings Ltd.’s stock shed as much as 30% on Tuesday, the most in more than a year, after it was scrapped from the Stock Connect program that links the Shanghai and Shenzhen bourses to the Hong Kong exchange. CIFI Holdings Group Co. and Sino-Ocean Group Holding Ltd. each sank more than 20%, while a Bloomberg Intelligence gauge of Chinese developers declined as much as 5.4% to the lowest since April.
The removals are the latest blow to China’s real estate stocks amid an ongoing property downturn. The country’s residential housing slump deepened in August despite government efforts to support the market, while shrinking sales from developers such as Country Garden Holdings Co. and China Vanke Co. have also weighed on sentiment.
Real estate firms’ “struggles with debt restructuring and structural challenges for the sector hampering a sales turnaround suggest the risks that the removal from the Stock Connect could be once and for all,” said Bloomberg Intelligence analyst Kristy Hung.
The gauge of Chinese property stocks have fallen about 31% this year, far outpacing about 7% declines of the onshore benchmark CSI 300 Index. The sector downturn is another sign that investors are quickly losing confidence in the distressed sector as a broad rescue package in May failed to reinvigorate homebuyer demand and the lack of further forceful measures.
“Chinese regulators could be running out of options to turn sales around in 2H, after unprecedented easing of rules in mid-May failed to boost sales,” says Hung. Concerns intensified in recent weeks after a string of disappointing earnings reports from major developers.
Under exchange rules, a company can be removed from the Stock Connect if its average month-end market cap in the 12 months prior to review has fallen under HK$4 billion ($513 million).
Meanwhile, Alibaba Group Holding Ltd. shares rose in Hong Kong after it was added to the Stock Connect program. Chinese investors also purchased HK$4.2 billion worth of Hong Kong stocks less than an hour into trading.
--With assistance from April Ma.
(Updates with explanation on removal in graph 7)
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