History has determined a simple way to play the Hong Kong stock market. For a roller-coaster ride through its agonies and ecstasies, simply buying property developer stocks has provided a sure path to riches.
Six firms control 65 per cent of private housing supply, dominate government land auctions and have maintained gaping profit margins above 50 per cent. All can thank the profit elixir of limited land supply, more potent this year than at any other time in the past decade.
Yet, even as home buyers scramble to the latest pre-sale offers, promising another bout of speculation, property stocks have been this year's great disappointment.
After a strong end to 1996, the sector has underperformed. The Hang Seng property index has trailed the boarder market by 12 per cent. Many stocks are actually down on early year levels. With China investing all the rage, property is playing conspicuous second fiddle.
Many argue this is a temporary affair, caused by investors' fickle obsession with red chips, that will surely correct with the next investing theme. Expect a retreat to property once Beijing spikes the red-chip bubble by cracking down on the reckless giveaway of state assets.
The idea of a rotation towards property stocks - allowing a seamless elevation of the bull market onward and upward - is the stuff of stock broker dreams. Of course, a benign United States interest rate picture would help things, but what of the underlying strength of the sector? Even by developers' rarefied standards, the 1990s have been phenomenally profitable. Mistaken estimates of population growth meant too little land was released. A more drawn out project approval process and a civil service distracted by huge infrastructure works compounded the effect. Only 20,000 new units were completed last year, compared with an average of 35,000 units in the late 1980s.