china does not give a hoot about the usa election, for it is irrelevant for china
romney is far more likely, like the slug that he is, to kowtow to the mandarins in the forbidden city than obama ever could even if obama tries, because obama is not smart enough to do so
in the mean time, from the premier hk real estate analyst who made a fortune by way of what he analyzes, some discerning comments that excites the soul
below, when considered together w/ the currency pressures to the upside, is intoxicating
big macro plays comes several times per generation, and must be played
| The Monaco of China: 100% Upside If Left Unchecked | | By Peter Churchouse, Founder, The Asia Hard Assets Report | Friday, October 19, 2012
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Back in the days leading up to the handover of Hong Kong to China in June 1997, I said Hong Kong could become "The Monaco of China."
That has happened…
The city is now a target for wealthy property buyers from the big elephant market to its north, China. Hong Kong's low tax base, ease of doing business, open capital system, and free-and-easy lifestyle has attracted people and money from China to Hong Kong.
Thanks to the "Monaco of China" effect, people from mainland China are now buying about 30% of the properties in Hong Kong above US$1.5 million in price. Locals here in Hong Kong are now rightfully worried that the Chinese are pushing prices up.
There is more to come. Courtesy of Mr. Bernanke in the U.S. (and Mr. Draghi in Europe), Hong Kong asset prices are likely to continue to face upward pressure for years to come.
Left to its own devices, it is entirely possible that Hong Kong residential prices could rise 100% from here over the course of the next three years.
We have a number of reasons why this could happen now…
| 1. | Bernanke's announcement of "QE3" simply told Hong Kong property investors that they have years to take advantage of low interest rates in Hong Kong to make money from real estate. | | | | 2. | Mortgage rates in Hong Kong are now at record lows around 2.2%, and are set to remain low for some time to come, which could fuel a bubble. | | | | 3. | Household incomes in Hong Kong are growing at about 6% a year, and unemployment is only around 3.5%. Both of these trends put solid upward pressure on property prices. | | | | 4. | There's little new supply of residential properties in Hong Kong. Annual housing production is only about half of its long-term average. Meanwhile… | | | | 5. | There's plenty of demand… beyond the "Monaco of China" effect on high-end properties. |
The thought of a 100% rise in Hong Kong residential prices over the next three years might sound outrageous at first. But it has happened before…
In the two years from late 1995 to late 1997, prices rose by around 100%. However, the Asian Crisis and years of deflation since the beginning of this century have meant that prices in real terms now are about the same as 1997.
There have been other episodes of very sharp escalation of property prices in Hong Kong. For example, in the three years leading up to the end of 1980, residential prices moved up by between 100% and 120% PER ANNUM. Now that is a bubble!
The key caveat here in this 100% upside idea is the phrase, "left to its own devices."
You see, the Hong Kong property market is unlikely to be left to its own devices…
The Hong Kong government and its central bank worry about property bubble conditions emerging. Evasive action has been and is continuing to be taken. Further policy measures could well be introduced if prices continue the pace of growth seen in recent months.
Still, the balance of risk for residential property prices is more to the upside than the downside.
So how should you trade this?
The shares of the major property developers in Hong Kong should be big beneficiaries from the conditions we see prevailing in the Hong Kong property markets over the coming couple of years.
Property developers have the potential for decent earnings increases, from both increases in construction as well as potentially rising prices. The main overhang for these stocks is the risk of further policy actions aimed at curbing demand and price pressures.
The Hong Kong housing market is dominated by approximately six major developers who routinely produce at least 70% of the city's new private housing. Current easy money policies will play very well to rising earnings prospects in the coming three to four years for these major developers.
This list includes Sun Hung Kai Properties (0016:HK), Cheung Kong (0001:HK), Henderson Land (0012:HK), Sino Land (0083:HK), and New World Development (0017:HK).
These stocks are all trading at deep 30%-50% discounts to underlying net asset values with average 2012 price-to-earnings ratio of around 15 times. They also pay very respectable dividends with an average expected yield of a little over 3% for the current year.
These are the big blue chips, and they are attractive today for investors who can easily trade Hong Kong shares.
For U.S. individual investors, the simplest, most-liquid way to buy a basket of the major Hong Kong blue chips (that includes these names) is to buy the iShares MSCI Hong Kong Index Fund (symbol: EWH).
With a pile of positive indicators that should remain in place for years, combined with reasonable valuations, Hong Kong property developers are a buy in my book.
Sincerely,
Peter Churchouse
Founder, Asia Hard Assets Report |
