By Clement Tan
HONG KONG, Oct 16 (Reuters) – China property stocks offer good investment opportunities as Beijing engineers a soft landing for a sector that is seen crucial for the broader economy, according to a fund manager at JP Morgan Asset Management.
“Beijing cannot afford to let its property sector drop too much,” Emerson Yip, who co-manages the JF Greater China fund, which had assets of $647 million as of end-August, told a media briefing late on Monday.
With prospects of a recovery in its manufacturing sector uncertain due to a weak global demand for its exports, Beijing will need to rely on the real estate sector to maintain growth, Yip said. He declined to mention specific stocks.
Official data on Thursday is expected to show China’s third-quarter growth slowed to 7.4 percent from a year earlier, leaving the world’s second-largest economy on track for its worst year of expansion since 1999. (Full Story)
“With China, it’s not about housing prices,” he said, adding that it is more important for developers to generate sales volumes.
Transaction volumes are important, particularly for smaller developers in China, because they need to generate cash flows to finance new or ongoing housing projects.
Yip’s improved view on the Chinese property sector comes as he pares back his optimism on Hong Kong property stocks.
“The Hong Kong property sector is not cheap…it is fairly valued at this point,” Yip said.
The Hong Kong real estate sector is currently trading at 13.8 times forward 12-month earnings, an 8 percent discount to its 10-year average, according to Thomson Reuters I/B/E/S.
On the other hand, Chinese property stocks listed in Hong Kong trade at 7.2 times forward 12-month earnings, a 35 percent discount to its 10-year average.
MAJOR HOLDINGS
Low valuations also make the embattled Chinese banking sector a good short term play in the fourth quarter, Yip added.
As of end-August, financials listed in Hong Kong accounted for about 38 percent of the JF Greater China fund’s portfolio, with the information technology and consumer discretionary sectors following at 25 and 9 percent, respectively.
Among its top-five holdings were insurer AIA Group and property firm Cheung Kong (Holdings).
Yip’s fund has outperformed its benchmark this year, gaining 8.4 percent till end-August compared to the 5.9 percent gain on the MSCI Golden Dragon Index. It is set to outperform this year after underperforming in 2011.
On a five-year cumulative basis, the JF Greater China fund is down 9.5 percent, underperforming its benchmark’s 8.5 percent loss.
(Additional reporting by Vikram Subhedar; Editing by Muralikumar Anantharaman)