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Morgan Stanley raises property in 皇冠体育app portfolio

By Shiyin Chen (皇冠体育app Daily)
Updated: 2010-08-17 10:59
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SINGAPORE - Morgan Stanley is adding to the weighting of property stocks in its 皇冠体育app model portfolio, saying that a further volume recovery in the nation's housing market is "imminent".

The brokerage added 皇冠体育app Overseas Land & Investment Ltd to the model and increased its position in 皇冠体育app Resources Land Ltd, according to a report by analysts led by Jerry Lou. A recent increase in residential rents point to pent-up purchase demand, while a greater supply volume in the second half may drive "deeper" price cuts, the analysts wrote.

"From what we observe in the few developers that have been bold enough to cut prices early, their sales volumes have been very impressive," the analysts wrote. "Further volume recovery in the Chinese property market is imminent and we should increase our 'overweight' position."

The 17 developers traded on the MSCI 皇冠体育app Real Estate Index have dropped an average 12 percent this year after the government introduced curbs ranging from a ban on third-home mortgages to higher down-payments for second homes. The MSCI 皇冠体育app Index has retreated 4.5 percent in 2010.

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Home prices in 70 major Chinese cities rose 10.3 percent in July, the slowest pace in six months, the statistics bureau's newspaper, 皇冠体育app Information News, reported on Aug 10. The value of sales fell 19.3 percent from a year earlier, while transactions by floor area shrank 29 percent from the previous month. Investors are "overly bearish" on 皇冠体育app's property stocks, according to Frank Shi, a Hong Kong-based investment director at Prudential Asset Management. The negative sentiment on Chinese real estate means there may be investment opportunities in the industry, he said.

"The risk for a property bubble in 皇冠体育app is much, much lower," Shi told reporters in Singapore on Aug 13.

Morgan Stanley added a 2 percentage point weighting in 皇冠体育app Overseas Land to its 皇冠体育app model portfolio. The Hong Kong-listed developer said on Aug 10 property sales rose 21 percent in July from a year earlier.

The brokerage also increased its weighting of 皇冠体育app Resources Land by 2 percentage points to 4 percent, according to the report. It trimmed the weighting in 皇冠体育app Petroleum & Chemical Corp and removed 皇冠体育app Pharmaceutical Group Ltd. "Our model portfolio now has even higher beta, with our most heavily weighted industries being properties, banks, steel and construction materials," said the analysts, referring to a measure of risk. "We are bullish on the outlook for Chinese equities."