Investors should buy China property stocks, UBS says


Investors should buy shares of China’s property companies and makers of large home appliances, as both industries will benefit from the rising real estate transaction volume, according to UBS AG:

“We think the latest investment theme in the A-share market is property and related white goods, supported by the strong property transaction volume increase in tier-1 cities,” according to the report on yuan-denominated China stocks. “The strong momentum continued in February and is getting even stronger in March.”

A measure tracking property stocks in China has surged 65 percent this year as investors bet price cuts, government support measures and record loan growth will revive demand.

Henderson Global Investors are of the same opinion:

It is a time when you can accumulate some of the best companies at good valuations.

china-wallDoes it make sense to acquire Chinese quoted property firms? I’m inclined to say yes. In China, GDP growth slowed rapidly to 6.8% y-o-y in Q4 of 2008, down from 9.0% in Q3. So, as for most countries in the region, China has experience a sharp deterioration of the economic trend. The country is likely to face a recession, unless stimulus programs are being introduced by the government. In order to boost economic growth and to avoid rising unemployment and bankrupties, such stimulus programs have now been introduced at a substantial scale. Analysts comment that “China’s leaders are turning economic crisis to competitive advantage”.

These programs not only stimulates domestic demand, but is likely to increase the competitiveness of Chinese companies through expansion of R&D subsidies. That, in turn, is likely to help companies through the recession – if it even comes to that.

Then, lending has become more readily available in China. It has been reported that China’s new loans more than quadrupled to 1.07 trillion yuan in February from a year earlier. Better accessibility of financing and lowering interest rates will increase property firms’ profitability and investor demand accordingly.

One have to bear in mind the fact that the Chinese property market has been overheated well before the actual onset of the credit crisis, nourished by concerns on the massive supply pipeline and high valuations. So, the credit crisis has accelerated the downturn. It is likely that prices have been ‘overshooting’, and now that lending conditions and demand are likely to come back to normal, one may expect the property stocks to re-bounce. And so they did. By 65 percent already. UBS and Henderson think that there’s more where that came from… We’ll see.

Read the article on Bloomberg.