Standard & Poor's Asian Equity Research remains optimistic about Hong Kong property stocks despite a recent run-up in the counters that has left them looking expensive.
'These stocks are now priced ahead of their fundamentals,' associate director Christopher Lee said yesterday.
'But there is significant potential for an upward revision,' he said, pointing to increased transactions and fewer bankruptcies as among the data which could justify a revaluation of the sector in the middle of the year.
He said the property market could get a boost from the weakening US dollar. A weaker greenback makes Hong Kong property and other assets less expensive for overseas investors.
Mr Lee remains positive in the luxury property sector and is becoming more optimistic in the mass residential market - despite the oversupply overhang - amid an improving sentiment among home buyers and investors.
Sun Hung Kai Properties, Hang Lung Properties and Singapore-listed Hongkong Land were his top picks in the property sector.
The research house also remained bullish on mainland-related commodities plays, which enjoyed an extraordinary run last year due to China's booming economy.
Basic materials and commodities counters would continue to shine amid raw material shortages in China, with Jiangxi Copper a key beneficiary thanks to its copper and gold reserves, along with Chalco.
Natural resources stocks aside, the focus this year would turn to the large-cap domestic plays and energy counters at the expense of the Asian small and mid-cap exporters, which fared well last year due to strong export growth to the US, Mr Lee said.
'Rising materials costs ... would squeeze the margins of these exporters this year,' he said.
In addition to his property choices, Mr Lee's other top selections for S&P Asia PowerPicks - a new model portfolio launched by the company - were Japanese consumer electronics giant Sony, contract chipmaker Taiwan Semiconductor Manufacturing, Singapore's Hong Leong Finance, Cathay Pacific, CNOOC and Beijing Datang.
According to data from fund research firm Lipper, equity funds focused on information and technology sectors had the best returns last year, with semiconductors, telecommunications and electronics contributing the most.