BT : Start accumulating property stocks: SG

Business Times - 09 Jun 2010

Start accumulating property stocks: SG

(TAIPEI) Societe Generale has recommended Chinese property shares after they slumped most among all industry groups this year on government efforts to quell asset bubbles.

Investors should acquire 'some of the property developers, which is quite contrarian,' Todd Martin, chief economist in Asia for France's second-largest bank by market value, told Bloomberg Television, without naming companies. 'So we are telling people to start accumulating into the third quarter where we think timing is good for buying stocks cheap.'

A measure of developers' shares has slid 30 per cent this year, the worst performer among five groups on the Shanghai Composite Index. The broader gauge has lost 23 per cent, pared by a 0.09 per cent advance yesterday.

China equity funds had their largest inflows since April, helping to limit net outflows from emerging-market funds focusing on Asia ex-Japan, EPFR Global said. China, an engine of world growth, is maintaining stimulus measures as Europe's efforts to rein in fiscal deficits threaten demand for exports.

The government has ordered banks to set aside more reserves three times this year, reined in loans for purchases of multiple homes, increased mortgage rates and raised down-payment requirements to curb property speculation. Housing prices surged a record 12.8 per cent in April.

Property stocks may decline a further 10 per cent in the coming one to three weeks, JPMorgan Chase analysts led by Raymond Ngai wrote in a report yesterday. The brokerage cut its profit estimates for developers by an average 9 per cent in 2010 and 11 per cent in 2011 due to a 'substantial slowdown' in transaction volumes.

China's economic growth may slip to between 10 and 11 per cent this quarter as industrial production and investment expand at a slower pace, Zhang Liqun, a researcher at the State Council's Development and Research Center, said on Monday.

Property sales in Beijing and Shanghai fell in May. Still, Mr Zhang said property investment may not slow substantially until the fourth quarter as developers are likely to remain cash-rich for some time and continue with existing projects.

China and Hong Kong stocks were cut to 'neutral' from 'overweight' on speculation that policy easing may be 'far away' and growth expectations will continue to fall, according to BofA Merrill Lynch Global Research.

China is now the most 'overbought' market in Asia while its yield curve has narrowed 'sharply' to 102 basis points from 160 basis points in mid-April, strategists led by Sadiq Currimbhoy said in a report on Monday\. \-- Bloomberg

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