Property shares could emerge as a safe havenBusiness | Ivan Tong 7 Jan 2019
Last Friday, the People's Bank of China cut the required reserve ratio for banks, and this could stimulate the markets to rise this week.
By cutting the ratio by as much as 1 percent, the PBOC effectively released almost 1.5 trillion yuan into the banking system, with the government choosing to reveal the news ahead of a round of trade talks between United States and China.
This reflects that the cut was not simply aimed at boosting liquidity and the market expects the PBOC may further cut the reserve ratio another two times this year.
Although the cut shows that the central government is worried over downward pressures on the economy, the market has welcomed the cuts as the capital pool will be increased.
The Hong Kong and A-shares market both surged almost 2 percent last Friday, which may due to the fact that some investors were already in the know about the cut.
The spotlight this week will be on the two-day trade talks which start today in Beijing.
The talks are being held by low-ranking representatives and though no one expects an agreement to be signed during these discussions, China now has the upper hand as US markets have fared badly recently with tech giant Apple warning of a slump in revenues due to the trade skirmish and a slowdown in China.
US President Donald Trump has recently been sending out a lot of positive signals to support the market which means that his government too is feeling the heat of downward pressures on the US economy.
And while we should not necessarily believe everything that Trump says, there are many opportunities for the markets in Asia to rebound.
The benchmark Hang Seng Index surged 561 points last Friday and nearly all property shares rose. CK Assets (1113), Henderson Land (0012), New World Development (0017) and Sun Hung Kai Properties (0016) shot up by almost 5 percent while Link Real Estate Investment Trust (0823) rose 3.58 percent to a record high of HK$80.95.
Market capital continues to search for safe havens in the midst of all the trade war gloom.
It appears that the Federal Reserve will slow down its pace of rate increases after chairman Jerome Powell said last Friday that the Fed would be "patient" and "listening" to the markets, and would balance the steady flow of strong economic data against the array of risks that have spooked investors.
Property prices in Hong Kong fell by less than 10 percent in the last quarter and it appears that prices will fall further in the future.
However, I believe that the current prices of property shares already reflect this negative news.
Therefore, property shares could be the first choice as a safe haven for investors, as they will shine once property prices rebound.
Meanwhile, the situation and performance of Link REIT is different from other property shares. Besides paying high yields to shareholders, the firm also sold some Hong Kong assets, bought several shopping malls in the mainland, and bought back its shares seven times over the last year.
All of these are reasons why its shares always rose, whether the market was bullish or bearish.
However, no one has a crystal ball to predict when the price of Link REIT will fall as its yield has already reached 3.2 percent.
Is it worth buying Link REIT shares? It all depends on your appetite for risk.
Ivan Tong is Editor in Chief of The Standard.