Stocks viewed as cutting through the talk of gloom

Deep discounts to net asset value and the pricing in of negative factors linked to a property downturn have prompted some analysts to take a positive view on the stocks of some Hong Kong developers.

"We think the market is underestimating the resilience of both the physical market and the valuation of developers," said Lee Wee Liat, BNP Paribas' Hong Kong-based head of Asia property research.

The recent strong take-up of primary residential projects on the back of price discounts, stable prices and low supply volumes in the secondary market indicated that market sentiment remained upbeat, he said. Against such a backdrop, Lee said deep discounts to developers' net asset values made property stocks attractive.

Bocom International expects the share prices of Cheung Kong, Henderson Land Development and Wheelock will rise more than 20 per cent this year, while Jefferies says developers with a meaningful, diversified exposure to mainland property and other businesses - such as Cheung Kong and New World - remained attractive.

Lee said BNP Paribas had conducted a stress test on major developers' net asset value by factoring in a worst-case scenario that assumed home prices fell by 40 per cent, a 200 basis point rise in interest rates and 20 per cent fall in investment property rentals. All these factors would lower developers' net asset values by between 9 per cent and 26 per cent, subject to their exposure to the city's residential segment.

"Our analysis shows Cheung Kong's net asset value will be least affected as it has only 21 per cent exposure to the Hong Kong property market," he said.