21 October 2016
Jubilee Garden in Sha Tin saw a sharp rise in property values after the estate underperformed the market in the past. Credit: wikipedia
Jubilee Garden in Sha Tin saw a sharp rise in property values after the estate underperformed the market in the past. Credit: wikipedia

Time for some readjustment in investment strategies

It’s time to conduct a mid-year review of different asset classes.

In the housing market, local buyers continue to scramble for properties in Hong Kong, with small-sized apartments the most sought after.

The market will cool only if financing costs rise and rental returns decline significantly.

I said in mid-January that rental yield is unlikely to fall back dramatically due to limited housing supply and steady economic growth. It remains unclear whether the US will hike its key interest rate this year.

And investors in the housing market have yet to find any better alternatives, which could further drive up home prices.

Properties in certain areas can always offer some alpha. I had recommended Jubilee Garden in Sha Tin district last year. The private residential estate has posted the sharpest gain in May among the 100 estates monitored by Centaline Property.

Jubilee Garden had underperformed the market for years in the past. But a renovation of the estate has helped provide a trigger for it to lead the market rally.

The example shows that investors can still find alpha from certain properties despite narrowing beta in the housing market at large.

Speaking about equities, I’ve predicted in late 2014 that the Hong Kong market may fare better this year as China-related counters will start to pick up. Also, the market valuation remains at attractive level, and there is still has low-cost liquidity. And investors can still find many cheap small-cap stocks.

Winding up of the QE and possible rise of the Fed funds target rate are the two headwinds for US markets. And the mainland market is facing various uncertainties and quickly-changing sentiment among its huge base of individual investors.

All the previous pronouncements are still valid at this point. However, we should bear in mind that the Shanghai Shenzhen CSI 300 Index has already jumped 31 percent so far this year, and Hang Seng Index rallied 13 percent. By contrast, the S&P 500 only rose 2 percent.

As a result, investors should re-adjust their strategy. I suggest they take profit as the Shanghai Shenzhen CSI 300 Index hits the peak and entirely focus on new shares.

And investors should take advantage of the recent deep correction for bottom-fishing. The US markets have shown sign of changing direction after trading sideways for a couple of months.

Overall, investors should pay attention to the level and momentum in placing any bet. They could find some bargains such as the A-shares of Ping An Insurance Co. of China (601318.CN), and also test the US market through some Chinese firms listed there.

This article appeared in the Hong Kong Economic Journal on June 22.

Translation by Julie Zhu

[Chinese version中文版]

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Columnist of the Hong Kong Economic Journal

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