HongKong property stocks battered by protests look cheap
We’ll be curating stories from management guru John Bittleston and making them free to read.Protests that started in early June against a bill allowing extraditions to the mainland continue, challenging China's hold on the former British colony. The unrest has helped drive the city's economy into a recession, causing pain across the retail, tourism and hospitality industries.
Last month, home prices in the city actually rose in consecutive weeks, according to a widely followed index compiled by Centaline Property Agency Ltd. Later in November, Hong Kong's government fetched a record US$5 billion for a parcel of land in a tender won by Sun Hung Kai Properties Ltd, marking at least a partial vote of confidence in the real estate market.
To be sure, equity investors have reason to be nervous. Last weekend, the city saw its biggest protest in months, and on Monday police defused bombs at school, providing a reminder of the potential for escalation of violence. Also, Hong Kong's GDP is predicted to contract 4.4 per cent year on year in the first quarter of 2020 and by 3.2 per cent in the second, according to forecasts compiled by Bloomberg.
Still, the fundamentals of the city's property companies are proving resilient. The gross margins of developers climbed to 45 per cent in the third quarter, the highest in Bloomberg-compiled data going back to 2016. "The downside for Hong Kong property stocks will be limited considering the sector's relatively low valuation," said Liu Jieqi, vice-president of Zhongtai Financial International Ltd."The fundamentals of real estate stocks are generally solid. In the short-term, concern over the economic slowdown is largely priced in."
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