News: According to Bloomberg, a report in the Chinese-language Economic observer says Shanghai will introduce a property tax policy on a trial basis next month. The report is believed to have caused a 5% selloff on the Shanghai Stock Exchange yesterday, although it didn’t identify the nature of the tax and said only that more detailed policies may be announced at a later date. It seems that this is a local issue, not requiring approval from the central government. In a separate video interview, however, Bloomberg also has a very interesting chat with one of the country’s biggest real-estate developers, Zhang Xin of Soho China, who said greater clarity was needed on policymaking towards the real-estate sector if trading is to recover. She was not worried about price falls, as developers are cash-rich and she believes that as soon as clarity returns to policymaking, trading activity in the market will come back strongly.

Analysis:We know there are bears lurking out there who are worried that Macau’s gaming revenues are going to come back down to the monthly MOP12-13bn range in 4Q, as the junkets who fuel the industry are so dependent on property values in China for collateral on the credit they acquire and extend to players. We too are concerned about the ups and downs of policymaking in China towards the property market at present. But as this Bloomberg report and interview show, it is far from sure that prices are going to collapse anytime soon. Trading activity has indeed declined in first- and second-tier cities, which would normally foreshadow a drop in prices once developers’ cashflow does begin to be squeezed. But this is China, where normal economic theories do not always apply. The current clampdown, including the speculative report about a property tax on residential properties in Shanghai, has much more to do with politics than it does economics. This is in contrast to past downturns in property prices, which have been initiated by genuine falloff in demand, and which have had genuine knock-on effects in Macau. We do not think it is time to short Macau gaming stocks.

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