22 February 2019
Although home prices have surged to record highs, property stocks in Hong Kong largely trade at a deep discount to net asset value. Photo: HKEJ
Although home prices have surged to record highs, property stocks in Hong Kong largely trade at a deep discount to net asset value. Photo: HKEJ

HK equities: Avoid buying in a rangebound market

Financial markets will be keeping a close eye on developments in the United States and the United Kingdom in the coming days.

In the US, Donald Trump will be sworn in as the nation’s 45th President this Friday, while in Britain Prime Minister Theresa May is expected to soon unveil a detailed plan for her country’s exit from the eurozone.

It remains to be seen if Trump will live up to his campaign pledges of tax cuts, deregulation and infrastructure spending.

The outcome will have a strong bearing on sectors that have already benefited from such policy expectations, such as US banking shares.

Meanwhile, May’s EU exit plan will have a strong influence on companies with big exposure to the UK, such as HSBC Holdings (00005.HK)

Coming to the Hong Kong market, it is relatively directionless as of now, and may continue to be rangebound for quite sometime.

Given the rangebound trading pattern, investors should guard against the impulse to chase stocks when they are already far up.

For example, some analysts have recommended property stocks last week. But we have seen that the stocks witnessed considerable pullbacks on Monday.

Numerous developers have expressed concerns about the high land prices, indicating that they too are not sure as to how long the property rally will continue.

Cheung Kong Property Holdings (01113.HK) announced a plan to participate in an Australian energy deal recently along with its group affiliates. When a big developer is diversifying into non-property business, it tells you something about how cautious they are about the property outlook.

With fears of bubble bursting at some point, property shares continue to share at a deep discount to their net asset value.

Yet property tycoons are not taking advantage of the discount to buy back shares or even take private their listed arms, which is another reason why investors should stay cautious.

Macau gaming stocks have witnessed active buying in recent months. But again, the short-term strength is not a good reason to go into the sector now, given the highly seasonal business pattern.

Macau’s current casino gaming concessions are scheduled to expire in 2020 or 2022. Australian billionaire James Packer’s Crown Resorts has decided to sell off a major stake in its Macau casino business.

In fact, a number of US casino operators may have difficulty in obtaining license renewal as China-US relations could become strained under the Trump administration.

This is another reason why investors should be careful with casino plays.

This article appeared in the Hong Kong Economic Journal on Jan. 17

Translation by Julie Zhu

[Chinese version 中文版]

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columnist at the Hong Kong Economic Journal

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