(Sept 18): Even after a plunge in Hong Kong property shares following months of protests in the city, Eastspring Investments says some of the biggest stocks in the sector remain unappealing because of their valuations.
John Tsai, a portfolio manager in Singapore, trimmed his holdings of Henderson Land Development Co. and Sun Hung Kai Properties in July, and remains underweight on the sector. He cited expensive valuations and lower dividend yields relative to their peers and other sectors such as telecommunications.
“My view on Hong Kong property stocks is still cautious,” said Tsai, who manages almost US$1 billion ($1.37 billion) in Hong Kong equities and shares of Chinese companies listed in the city. “We are more value-biased and tend to focus on ‘cheaper’ stocks that seem to be overly beaten up and not appreciated.”
The pro-democracy protests that started in June have dented business at the biggest developers in Hong Kong. Used home prices have slid about 1% since mid-June, data from Centaline shows. The transaction value for new luxury homes slumped 31% in July to an eight-month low. Sun Hung Kai Properties, the city’s No. 1 builder, is offering new homes at a discount to entice buyers during the political crisis.
Henderson Land and Sun Hung Kai Properties are currently trading at a forward earnings multiple of 11 and 9.4 times respectively for 2020, while the Hang Seng Properties Index is at 8.9 times for the same period. The two stocks offer dividend yields of less than 5%, which has prompted Tsai to turn to telecommunications-related stocks for greater income.
In recent weeks, the fund manager has increased his holdings of Lifestyle International Holdings and PCCW that are yielding 8% and 7%, respectively.
Tsai prefers cheaper defensives as opposed to traditional ones such as healthcare where the valuations are too high, he said.
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