JPMorgan sees 35% drop for China’s top automaker as woes mount

(Bloomberg) – Shares of Country Garden Holdings Co. are set to fall 35% as liquidity issues surrounding China’s private builders aren’t expected to ease anytime soon, according to JPMorgan Chase & Co.

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The Wall Street bank downgraded China’s largest real estate developer and its property management unit Country Garden Services Holdings Co. to underweight, according to a note released Sunday. He warned government measures would not stem the decline given weakening sector sales, default risks and a slowdown in refinancing support from authorities.

“Until further government support is confirmed, we believe private developer liquidity issues will persist,” analysts including Karl Chan wrote in the note. Shares of Country Garden and Country Garden Services fell 8.7% and 18%, respectively, on Monday, alongside a decline in the broader real estate sector.

China’s struggling real estate sector is under pressure again as signs mount that some developers may struggle to repay loans. A plan to sell assets by Dalian Wanda Group Co. helped ease some concerns, although subdued big bang stimulus expectations continue to weigh on the outlook.

JPMorgan’s latest price target for Country Garden – HK$0.9 – is the most bearish on the street, according to data compiled by Bloomberg. Investors who follow his recommendation would have earned an 8.6% return over the past year. Country Garden shares have plunged more than 50% since late December and from last Friday’s close the price target would represent a further drop of 35%.

The call comes amid growing scrutiny of sell-side research in China as Beijing tries to counter negative market sentiment amid slowing growth. Goldman Sachs Group Inc.’s bearish report on Chinese banks drew backlash from a major lender, as well as state media earlier this month.

Still, JPMorgan analysts say the carmaker is “working hard to avoid a government bond default” and, logically speaking, the government “should be pressured to offer more refinancing support to Country Garden to avoid another high-profile default in the industry.”

“This is to avoid a further crisis of confidence in other private developers and to reduce the likelihood of even more unfinished buildings,” they wrote.

–With the help of Alice Huang.

(Stock movement update)

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