Lessons from Sunac's Investment Failure for Hong Kong Stock Market Real Estate Investments

According to market data, Sunac China (1918.HK) has experienced a

in its stock price: a cumulative drop of 95.22% over the past 5 years and a 43.17% decrease so far in 2025 [0]. This extreme case reveals multiple risks in the highly leveraged real estate industry:

• ROE was -65.98%, net profit margin was -39.42%, indicating severe losses in core business operations [0]
• Current ratio was only 0.88, quick ratio was as low as 0.23, far below the healthy level (usually >1.5) [0]
• These indicators predict
  liquidity crisis
  and
  capital chain breakage risk

Fitch Ratings predicts that China’s real estate sales will continue to decline by 7%-8% in 2026, facing multiple structural challenges:

• Demographic changes leading to shrinking rigid demand
• Uncertainty in the employment environment weakening purchasing power
• High inventory of existing homes and significant destocking pressure [1]

Price-to-book ratio was only 0.38x [0], reflecting extreme market distrust in the company’s asset quality. During the industry downturn, , making the traditional price-to-book valuation logic invalid.

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The core of the barbell strategy is

:

• One end
  : High certainty, low-risk assets (e.g., cash, government bonds, high-quality dividend stocks)
• Other end
  : High-growth, high-risk assets (e.g., tech stocks, emerging industries)
• Abandon
  : Medium-risk, medium-return “mediocre assets”

This strategy is widely used in fixed income—holding short-term and long-term bonds, avoiding medium-term bonds to balance yield and interest rate risk [2].

:
The Hong Kong stock market real estate sector shows characteristics of (Sunac fell 95% over 5 years) [0]. The barbell strategy addresses this by:

• Reducing allocation to “middle ground” assets like real estate to avoid
  tail risks
• Maintaining sufficient
  safety margin
  on the certainty end
• Capturing
  policy-driven or industry reversal
  alpha opportunities on the growth end

:
Sunac’s quick ratio was only 0.23 [0], highlighting the importance of liquidity management. The short-term asset end of the barbell strategy provides:

• Liquidity buffer to handle redemptions
• Ability to “bottom-fish” high-quality assets during market panics
• Avoid forced selling during troughs

:
Investopedia points out that the barbell strategy requires [2]. In a highly volatile environment like 2025:

• Sharp fluctuations in the value of assets at both ends require frequent rebalancing
• Transaction costs may erode returns
• Extremely high requirements for investor discipline

:
In 2025, the real estate sector may have :

• Leading state-owned enterprises (SOEs) have stabilized sales and operating cash flows [1]
• Some high-quality real estate enterprises may be wrongly sold off
  Completely abandoning the “middle ground” may miss
  value regression
  opportunities

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The “10% stock selection +40% capital management +50% psychology” system proposed by fund managers [0] has core implications:

:

• Avoid the
  Sunac-style trap
  of “high leverage + high growth”
• Prioritize
  cash flow-abundant, debt-controllable
  SOE leaders
• Focus on free cash flow discount (DCF) logic rather than book profits

:

• Allocation to a single real estate enterprise
  not exceeding 5-10%
• Retain
  30% or more cash or equivalents
  to handle uncertainty
• Use phased position building and stop-loss mechanisms to control drawdowns

:

• Accept the reality of
  long-term industry contraction
  [1]
• Avoid “bottom-fishing” mentality and wait for
  clear policy signals
• Establish loss tolerance thresholds to prevent emotional decision-making

:

Asset Category	Traditional Barbell	Revised Version (Adapted for Hong Kong Stock Market Real Estate)
Safety End	Government bonds, money market funds	High-dividend REITs, high-quality dividend stocks, cash
Risk End	Tech stocks, growth stocks	Selected SOE leader real estate enterprises (e.g., China Resources Land, China Overseas Land & Investment)
Middle Ground	Avoid allocation	Completely avoid highly leveraged private real estate enterprises

:

• Include high-quality real estate enterprises in the “risk end” instead of the “middle ground”
• Screen based on
  central enterprise background + low leverage + land reserve quality
• Control allocation ratio to 10-20% of total assets

Fund managers emphasize that the core difference between quantitative and subjective investment is

[0]:

:

• Overcome human weaknesses (greed, fear, overconfidence)
• Systematically implement stop-loss and position management
• AI tools can process massive data and identify patterns ignored by humans [3]

:

• Understand
  business essence
  and industry trends
• Judge policy shifts and market sentiment inflection points
• Make
  non-consensus decisions
  in extreme environments (e.g., real estate crisis)

:

• Use quantitative models to execute
  position control and stop-loss
• Use subjective judgment for
  target selection and timing
• Use AI tools to enhance research depth but retain
  final decision-making power

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According to the Central Economic Work Conference, “stabilizing the real estate market” is low on the agenda, so policies are expected to be

, without strong stimulus [1]. This means:

• Sales decline gradually narrows, but
  reversal is unlikely
• Investors need to adjust
  return expectations
  from capital gains to
  cash flow returns

• 20-80 differentiation
  between leading SOEs and tail private enterprises accelerates
• Differences in city tiers and project quality become more prominent

• Add
  inflation-resistant assets
  (e.g., gold, REITs) to the safety end
• Focus on
  high-quality real estate enterprises with clear business models
  on the risk end
• Establish
  dynamic adjustment mechanisms
  to fine-tune the proportion of both ends based on policy signals

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[0] Jinling API Data - Sunac China (1918.HK) Financial Indicators, Stock Price Performance, and Market Data

[1] Yahoo Finance - “Fitch Expects Chinese Real Estate Enterprises’ Sales to Continue Declining Next Year” (December 2025)
https://hk.finance.yahoo.com/news/惠譽料中資房企明年銷售續下滑-103506581.html

[2] Investopedia - “Barbell Investment Strategy: Definition, How It Works, and Examples”
https://www.investopedia.com/terms/b/barbell.asp

[3] Investopedia - “7 Unexpected Ways AI Can Transform Your Investment Strategy”
https://www.investopedia.com/using-ai-to-transform-your-investment-strategy-8778945

[4] Yahoo Finance - “Central Economic Work Conference: Adhere to Domestic Demand-Driven, Rectify Involution, Propose Eight Key Tasks; No Strong Stimulus for Housing Market Expected” (December 2025)
https://hk.finance.yahoo.com/news/中經會-堅持內需主導-整治內捲-提八大重點任務-料不強刺激樓市-181200658.html