Tuesday, January 18, 2011

Property in focus as stocks weaken

REAL estate sectors were in focus yesterday as stock markets in the region finished mainly weaker.


In China, news that property prices continued to rise even as the central bank hiked its reserve ratio requirements meant a weak day for its markets where its main indices plunged 3-4 per cent, resulting in the inevitable spill-over sell-off in Hong Kong, where the Hang Seng Index dropped 0.5 per cent.


In Singapore, news last Thursday of a severe set of anti-property speculation measures was still fresh on players' minds, resulting in a weak day for both the Straits Times Index (STI) and the broad market - the former ending 7.33 points down at 3,238.63, and the latter recording 193 rises versus 244 falls excluding derivatives.


Turnover, however, was relatively low at 1.8 billion units worth $1.3 billion excluding foreign currency issues.


One prominent feature was the rotational playing of second-line stocks by house traders and other punters which led to volume being an average of 72 cents per unit. Popular targets were China listings, probably a dual listing play given that some are looking at listing in Taiwan, Korea or Hong Kong.


Property stocks, in the meantime, underwent an indifferent session - CapitaLand actually rose though City Developments fell.


The government last Thursday announced a sharp raising of the stamp duty to be paid by sellers within the initial years following a property purchase, a move which many observers expect will dampen sentiment, albeit to varying degrees depending on the segment under consideration.


For instance, most brokers believe the luxury segment should remain relatively well-insulated from the latest round of property measures. One exception, however, is Daiwa Research which in its Jan 13 report, titled 'Arguably the most punitive policy measures ever', said that the measures will probably be successful in cooling the buoyant property market.


'With the imposition of these new sellers' stamp duty (SSD) rates, extended to four years, the latest cooling measures could also kill off any positive sentiment left. We believe the consensus view in the market that home prices will appreciate by 5-10 per cent for 2011 is at risk. We also believe that the SSD rates could hit the luxury segment severely,' said Daiwa.


In its latest report on the China stock market, Morgan Stanley (MS) noted that stocks were not rewarding in 2010 despite the country's strong growth.


'We partially attribute this to a lack of predictability of Chinese policies in 2010. Two rounds of property austerity measures, banking asset quality fears and anti-inflation campaigns tested investors' nerves. In hindsight, 2010 was proof that risky asset prices discount uncertainties and punish low visibility, regardless of what the outcome might be,' said MS.


'No matter how risky and uncertain the Chinese economy and stock markets might appear today, our value discipline keeps reminding us that a lot of such information is discounted in the current share price. Contrary to 2010, we think 2011 might feature a slowing Chinese economy and re-rating stock markets, thanks to improved policy visibility, peaking out inflation and still relatively strong earnings growth.'

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