Investors see Hong Kong property stocks, funds as reopening trades

Sun Hung Kai Properties

13/02/2023 24:00

By Georgina Lee
       HONG KONG, Feb 13 (Reuters) - As global investors look
for ways to profit from China's reopening from pandemic
controls, the beaten-down shares of Hong Kong's property firms
and real estate funds have become popular vehicles for riding an
expected economic recovery.
    While China's dropping of its stringent zero-COVID policy
late in 2022 has lifted travel and tourism stocks across Asia,
investors say Hong Kong's property sector has special appeal as
the mainland and local economies improve, tourists return to the
city and, sometime this year, U.S. interest rates peak.
    Investors see value in property companies regardless of
whether their assets are in mainland China or Hong Kong, which
reopened at about the same time.
    "We certainly view the current improving backdrop of Hong
Kong's reopening as a catalyst for continued re-rating," said
Jadgeep Ghuman, managing director on public real assets team at
real estate investment manager Nuveen. 
    Some property stocks have risen this year. Guangdong
Investment  0270.HK  is up more than 10% since the end of 2022,
while Henderson Land Development  0012.HK  has gained 7.2%. The
Hang Seng Property  .HSNP  index is up about 3.1%.
    Fund managers are particularly keen on Hong Kong real estate
investment trusts (REITs), because their stock prices are now
cheaper than the value of the properties they own or partly own.
REITs also tend to be heavy borrowers, so they are set to
benefit when interest rates fall.
    Hong Kong home prices sank 15.6% in 2022, ending a 13-year
rising trend after three years of COVID-19 dried up flows of
property buyers from China and tourists.
    Rises in Hong Kong mortgage rates that began last year have
compounded troubles for developers and mortgagees. Hong Kong
interest rates tailgate those of the U.S. due to the local
currency's peg to the dollar.
    REOPENED BORDERS
    Fund managers said the property sector had become a bargain
since borders reopened in January and as the widely expected end
of Federal Reserve's monetary tightening approached.
    "Hong Kong has a lot more to get us excited than China
property companies where their financial data remains weak,"
said Tim Gibson, co-head of Global Property Equities at Janus
Henderson Investors.
   Gibson likes Link REIT  0823.HK  due to its heavy exposure to
shopping centres that focus on non-discretionary retail
spending.
    Link REIT's share price dropped 54% from a peak in July 2019
to a trough of HK$46.3 at the end of October 2022. On Friday, it
was still down 37% from the peak.
    Rating agency Moody's Investors Service said in a report
last week that a rebound in tourism and retail consumption would
raise the aggregate retail rental income of the property
companies it rated, which include Link REIT and Sun Hung Kai
Properties  0016.HK , by up to 10% this year.
    Fortune REIT  0778.HK  and Guangdong Investment  0270.HK 
were also trading at attractive valuations and dividend yields,
said Daniel Fitzgerald, portfolio manager at Martin Currie, a
specialist investment manager at Franklin Templeton.  
    Fortune REIT is trading at 54% discount to its net asset
value. Guangdong Investment offers a dividend yield of more than
6.9%, higher than the industry median of 4%.
    "We remain positive on Hong Kong and many of its listed real
asset companies, across infrastructure, utilities and property,"
said Fitzgerald. "We see no reason why they could not get back
to where they traded, given the re-opening of the economy."
 (Reporting by Georgina Lee; Editing by Bradley Perrett)
 ((Georgina.Lee@thomsonreuters.com;))