Property stocks edge up despite US rates outlook
H shares decline following a six-day run of price increases as profit takers step in
Stocks rose in Hong Kong yesterday, boosted by a rebound in property plays and gains from mainland telecommunications stocks, while H shares succumbed to profit taking, ending a six-day rally.
Sentiment remained strong despite expectations the United States Federal Reserve would raise interest rates 25 basis points late yesterday and that Hong Kong banks would follow suit.
'The rate rise is generally expected but interest costs in Hong Kong would remain low and acceptable to many despite a raise,' one broker said.
The property sector would be the most vulnerable to a rate rise but 'the negative sentiment could be offset by expectations that property prices would rise more', the broker said.
The Hang Seng Index rose 83.15 points or 0.63 per cent to 13,304.48, while the H-share index fell 13.03 points or 0.28 per cent to 4,670.29.
Deutsche Bank analyst Mark Simpson said in a report that surplus liquidity could possibly take the Hang Seng Index to 14,400 in the short term but in a year slowing economic and market drivers would have cut the index to 11,000.
'This will in part reflect the rise in Hong Kong interest rates and the ensuing decline in liquidity conditions. Following on from that, we expect trade growth and property price rises to moderate quite sharply over the next 16 months and for loan growth to rise only modestly from this year's sub-trend performance,' Mr Simpson said. He expected corporate profit growth would fall significantly.
Mr Simpson is also turning bearish on property developers.
The properties sub-index rose 0.73 per cent yesterday, with Sun Hung Kai Properties adding 0.99 per cent to $76.50. The developer won a contract to redevelop a 15,000 square-foot site in Shamshuipo for an estimated $3,500 per square foot, higher than another redevelopment site won by Sino Land early this month.
'[But] major developers are trading at significant premiums to residual development portfolios and are less leveraged to changing property prices than in the past,' Mr Simpson said.
He believes generally shunned telecommunications plays should be re-rated over the next year on a clearer appraisal of 3G, strong subscriber growth and sharply improving balance sheets.
China Unicom rose 3.91 per cent to $6.65 while China Mobile gained 2.29 per cent to $24.60. The two companies recently released stable operating figures for last month.
But some brokers believed investors were simply rotating to laggard red chips after H shares' recent strong run.
CNOOC soared 4.05 per cent to $3.85, driven by oil-price rallies, and China Merchants rose 2.9 per cent to $12.40.
Television Broadcasts surged 7.89 per cent to $36.90 after it won long-sought landing rights for the Pearl River Delta.
Mainland insurers also outperformed, with PICC Property & Casualty rising 2.63 per cent to $2.925 and China Life Insurance adding 1.96 per cent to $5.20 on news that they would be allowed to buy stocks, boosting their investment income.
Denway Motors closed unchanged at $2.80, having fallen as much as 2.67 per cent during the day, after Citigroup Global Markets downgraded its rating from 'buy' to 'hold' and slashed profit estimates following disappointing sales and amid fierce competition.
TCL International dived 9.57 per cent to $2.60 after its parent TCL Corp said mobile-phone handset sales fell 39 per cent year on year to 453,277 units last month.
