But Cheng also lists several reasons to own China property stocks.
SINGAPORE (July 15): Singapore’s property developers are enticing investors with hefty discounts of 45% to book value, relatively reasonable valuations of 16 times earnings and yields of 3.2%. Yet, from the perspective of Raymond Cheng, head of research at CGS-CIMB Hong Kong and China, these metrics are nowhere near as attractive as those of property developers listed in China.
These Chinese stocks are trading at a price-to-earnings ratio of roughly six times and a 40% discount off book value, and offer an average yield of 6.2%. “There are some risks, but valuation is really cheap,” says Cheng, a veteran property sector analyst. The risks include relatively higher levels of gearing and possibility of the renminbi being devalued, which would in turn hurt companies that hold substantial amounts of US dollar-denominated debt.
