Value Partners’ contrarian call on Chinese property

Added 13th October 2016

Mainland property, the services sector and Chinese companies with global reach are the top investment themes for 2017, according to investment director Alan Wang.

Value Partners’ contrarian call on Chinese property

Alan Wang, investment director at Value Partners

“Chinese developers have experienced very strong sales over the past 18 months and even in September year-on-year growth remained double digit," he said at a briefing in Hong Kong yesterday. "The strong sales will translate to revenue and profits, which is locked in for the next 18 months.

“Even if we see a decline in sales volume over the next few months after the recent restrictions on home purchases, the level still remains high.”

Real estate bubbling

Some industry analysts have voiced concerns about a mainland housing bubble.

In a research note from Standard Chartered, the bank warned that China's property market is again heating up.

"This is not the first time the sustainability of China’s property market has come under scrutiny, but the market appears to be more worried this time around, as an overheating property market contrasts sharply with a slowing real economy."

About 20 cities have introduced measures to cool prices in the local property market, the bank said.

Manulife Asset Management senior portfolio manager of Greater China equities, Kai Kong Chay, said cooling measures on real estate pose a risk and bears monitoring.

Standard Life Investments emerging markets economist Alex Wolf warned that the rapid growth in non-bank financial institution leverage, which lends to smaller developers, “poses the risk of a disorderly deleveraging cycle in the event of a fall in property or land prices".

Value Partners' Wang believes there could be a price decline in some cities, but overall home price will stabilise, while a deep home price correction “is not going to happen.

“Hyperinflation will harm the economy, but deflation will do more harm,” he said, referring to both the economy and the residential real estate market.

Mainland developers are also becoming more cautious when bidding for new land, which leads to strong company balance sheets, he believes. “A major mainland developer listed in Hong Kong has seen a net cash position for the first time in the past decade. The asset quality is actually improving, not deteriorating.”

Institutional investors, such as insurers, who do not emphasise mark-to-market and are underweight China property, might look at the sector again due to its high yield of more than 5%, which is higher than the onshore property bond yield, he added.

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