Market cool to concept stocks

PUBLISHED : Friday, 05 May, 1995, 12:00am
UPDATED : Friday, 05 May, 1995, 12:00am

INVESTORS are losing interest in Shanghai's concept stocks for the three development companies in Pudong because of the cautious investment sentiment and the slowdown in the property market.

Analysts said investors were looking back more at the 'fundamental values' and preferred to invest in companies with relatively longer profit records.

The Pudong concept companies are government-backed real estate developers charged with overseeing development of the area.

An analyst said: 'The Pudong concept companies rely mainly on land leases for profits, which does not guarantee stable income.' An analyst at James Capel Research, Charles Huang, expected Pudong to face a difficult year because foreign investment had slid, compared to two years ago.

He said investment in the area by other Chinese provinces also fell because of the overall credit tightening in China.

Mr Huang said between 70 and 80 per cent of the annual earnings of concept companies came from land leases.

He predicted that profits for two of them, Shanghai Jinqiao Export Processing Zone Development Co and Shanghai Outer Gaoqiao Free Trade Zone Development Co, would slide this year.

Their profits had also dropped last year, he said.

The two companies are responsible for developing Jinqiao export-oriented products processing area, and Outer Gaoqiao bonded zone.

Together with Shanghai Lujiazui Finance and Trade Zone Development Co, which is responsible for banking and trading, the companies are listed on the Shanghai stock exchange.

A fourth development firm, Zhangjiang Hi-Tech Park, has yet to go public.

Plans to list since the beginning of the year were shelved because market conditions were not favourable.

Since the beginning of the year, B shares have under-performed A and H shares.

But Shanghai Jinqiao's administrative director, Gui Huakang said he was optimistic the B-share market would experience a gradual rebound, despite property stocks being 'more risky'.

'This is because foreign investors have not totally comprehended the situation,' he said.

Mr Gui's optimism was supported by Shanghai Lujiazui, which owns prime land in Pudong's financial district and forecast its net profit to increase by at least 28.8 per cent, this year to 550 million yuan (about HK$506 million).

The company expects the bulk of profits to come from land lease, and the rest, from property sales and returns on real estate-related investments by its 40 subsidiaries.

'According to our understanding of the current market, the situation is still acceptable,' he said.

He anticipated a rise in investment by the second half of the year, by which time discussions under way now will have been complete.

Assistant vice-president of Merrill Lynch Jason Cheung said the release of the details about real property gains tax had affected investors' confidence in the concept companies.

The tax charges effective rates of between 30 and 60 per cent on gains from property transactions.

However, contracts signed before January 1, last year, are expected to get a five-year tax exemption.