Peter's Perspective
11th August 2014 by Peter Churchouse

China Property Developers a Solid Investment

This Peter’s Perspective is largely a followup to a previous Perspective (then known as the AHA Digest)about Asian real estate cooling measures.


They Called Me ‘Crazy’…

In May I said the following about Chinese developers:

China Overseas Land & Investment Ltd (688 HK) is the stand-out for me. Along with China Resources Land Ltd (1109 HK) also.

I know this will raise a few eyebrows, but I believe there is a distinct possibility of a 30% to 50% bounce in these larger China property stocks…

It certainly raised a few eyebrows to say the least. I had more than a few people get in touch and double-check the veracity of that statement!

Not to worry. I’m pretty used to it by now.

Figure 1: China Overseas Land stock price from Jan 2014-August 2014 in HK$. Figure 2: China Resources Land stock price from Jan 2014-August 2014 in HK$.

We’ve done OK so far averaging around 20%, but I believe we have plenty more upside to come.

Keep an eye on your stops…

Chinese property is a volatile sector. We advocated a 20% trailing stop when we opened these positions. As a reminder, this means if the share price falls more than 20% from its peak level (after you bought it), you should exit the position.

Currently these levels are displayed above.

If I had to pick just one…

We had a reader ask which of these 2 companies we prefer outright. He didn’t want to split his position between 2 companies. We respond to that here by reiterating that China Overseas Land is the “stand-out” as we said before.

  • Biggest player in the space,
  • Low gearing,
  • Strong balance sheet,
  • Good access to capital (debt & equity),
  • One of the highest and most consistent returns on equity among listed mainland developers,
  • Will continue to expand and consolidate smaller developers.

I’ve said in many interviews with the media that my preferences is for the large China developers (the Asian Wall Street Journal picked up on this last month).

Having said that, most of what you are probably reading about China and the property market in particular is probably quite bearish. We’ll be talking about that in this month’s AHA Report. I’ll also be on CNBC talking China property next Monday at 6:30 AM Hong Kong time… for the early birds…

Have a great week ahead,

Peter

P.S. If you want more specific investment ideas, get a 50 day risk-free trial of The Churchouse Letter today.

AHA Digest Investment Ideas from April-August 2014.

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