Portfolio | Biggest developers in Hong Kong and China best placed to withstand rise in rates
Hong Kong conditions are attractive but yuan weakness dictates selective and long term China strategy
The property sector is under the spotlight as monetary policy shifts and the yuan slides, and analysts are banking on big names to maintain profitability.
Local developers have outperformed their mainland counterparts in recent weeks as it emerges the Hong Kong Monetary Authority may not immediately follow a US increase in interest rates, Jefferies analysts say.
Hong Kong’s ability to delay or even resist a mild rate hike was established in August when the unexpected yuan devaluation spurred asset reallocation and a surge in demand for Hong Kong dollars.
The aggregate balance in the banking system is up 78 per cent year to date, and the current loan to deposit ratio of 78.4 per cent compares favourably to 85.3 per cent during the last rate hike cycle, Jefferies says.
Even if developer margins are eroded by falling home prices, as many predict, Jefferies says the strong dollar and continuing low rates should drive sales – positioning the likes of Cheung Kong Property Holdings and Sun Hung Kai Property, which have flats launching soon, to lock in earnings.
“We believe this is a major top-down catalyst to attract buy flow into Hong Kong property stocks that have been oversold,” said Jefferies equity analyst Venant Chiang.
But for China’s developers, which are highly leveraged and carry significant proportions of US dollar denominated debt, yuan devaluation is bad news, notwithstanding official support for the sector.
