Investor Joseph Lau loses his Midas touch

Corporate raider Joseph Lau Luen-hung has made a fortune out of the stock market in the past, but that luck appears to be fast running out. Last year, in a surging market, his property firm Chinese Estates Holdings reported a gain of HK$1.2 billion from securities investment. Its core business - property - contributed only HK$2.73 billion. Now with the market in a seemingly endless spiral down, Mr Lau may wish that he had stuck to what he knows best: real estate. Chinese Estates reported an estimated fair-value loss for its listed securities investments of HK$2.55 billion in the first half. The unrealised loss narrowed from the HK$3.34 billion reported in January but the amount was still big enough to catch the market by surprise. Analysts say the losses mainly stem from its holdings in Ping An Insurance (Group). Shares of the mainland's second-largest insurer dived 27.6 per cent in the first six months of the year and are now down 39.37 per cent in the year to date, amid concerns over its investment in the subprime-stricken Belgian-Dutch group Fortis and an alleged tax probe. According to Chinese Estates' annual report, its top-five Hong Kong stocks for short-term investments were Agile Property Holdings, Bank of China, Bank of Communications, China BlueChemical and Ping An. Shares of Bank of China, Bank of Communications and China BlueChemical have been relatively stable in the past few months. But Agile, along with other property stocks, dropped more than 47 per cent in the first half of the year as investors became increasingly concerned that government austerity measures would drive down the profitability of mainland property stocks. 'Chinese Estates has shown strong confidence in stocks since 2005, especially mainland-related ones such as Ping An and Agile,' said Adrian Ngan Wai-hung, an executive director of CCB International Securities' research department. The market value of Chinese Estates' securities investments surged to HK$11.8 billion by the end of last year, according to Mr Ngan. The rise in value was partly helped by gains in Ping An's stock in the second half. In August, Chinese Estates and Mr Lau announced they held 5.12 per cent of Ping An at an average price per share of about HK$64. Of that, about 70 per cent was owned by Chinese Estates, according to analysts. The company and Mr Lau later increased their holdings to 7.03 per cent and started selling when the stock rose to HK$107. By the end of November, Chinese Estates and Mr Lau together reduced their holdings in Ping An to less than 5 per cent. However, with the Hang Seng Index down 22.97 per cent from the beginning of this year, Mr Lau has not been able to avoid heavy paper losses on his investment. 'The smartest investor should have sold all stocks when the market peaked last year, but who can do that?' said Dao Heng Securities analyst Eric Yuen Chi-fung. 'My impression is that Mr Lau is a good stock investor.' That has proven true in the past with the company earning HK$689 million from its securities investments in 2006, and HK$1.2 billion last year. But Mr Ngan pointed out that Mr Lau and his younger brother Thomas Lau Luen-hung were better known for corporate takeovers than stock speculation. Their reputation as corporate raiders was created when their investment unit, Evergo International Holdings, made a hostile bid for the Kadoorie family's Hongkong and Shanghai Hotels in 1987. Evergo, which listed in 1983 as a ceiling-fan manufacturer, was subsequently delisted in 1993 to become a subsidiary of Chinese Estates. During the 1980s it was also one of the most colourful second-tier developers. It had at that time a string of dismally received rights issues. In 2004, Mr Lau unveiled to the media his plan to improve the firm's corporate image by strengthening relations with the investment community. Mr Lau hoped to broaden the company's shareholder base and attract more medium- to long-term investors. Two years later, British hedge fund TCI bought 8.27 per cent of Chinese Estates, for HK$1.44 billion. The fund now is the company's second-largest shareholder. Mr Lau displayed his brashness in 2006 when he paid US$17.4 million at a Christie's auction for an Andy Warhol portrait of Mao Zedong. Last year, he placed an order for a 787-8 VIP plane from Boeing. But Chinese Estates' shareholders are more concerned about how the slumping stock market will affect they company's bottom line now. According to its announcement, Chinese Estates investments were still HK$4.16 billion in the black as of June 30. 'The reserve is on top of investment cost [of buying the shares]. That means the company will only see a real loss in the profit and loss account if its investment values fall more than HK$4.16 billion,' said Mr Ngan. He said earnings from its securities investments this year would not be affected as the company had recognised net investment income of HK$1.44 billion from the disposal of some stocks in the first half. Conita Hung Lai-ping, equity market head at Delta Asia Financial, said it was too early to judge Mr Lau's investment strategy as the HK$2.5 billion was a paper loss only. 'Time will tell as the company still holds the stocks,' she said. But she said punters buying the company for the short term would be exposed to higher risk as Chinese Estates was constrained by the stock market slump.