20130913-高盛-Themes__Property_pair_trade,_rising_rates,_high_gearing_20页_558kb

Asia Pacific: Portfolio Strategy Summary

Core Content

This document outlines the portfolio strategy for the Hong Kong (HK) equity market, focusing on the impact of the HKD-USD peg, rising interest rates, and the property sector dynamics. The analysis emphasizes that despite the peg, HK equities are still exposed to FX and rate risks, which can affect corporate earnings and valuations.

Main Themes and Key Points

1. FX Risk and the HKD-USD Peg

• FX Risk Exists: Even though the HKD is pegged to the USD, a rising USD can still impact HK's financial conditions, asset prices, and domestic demand.
• Impact on Earnings: A stronger USD could lead to lower asset price inflation, slower growth in average selling prices (ASP), and reduced asset turnover.
• Valuation Compression: A 50bp increase in discount rates could compress valuations by about 10%.

2. Rising Rates as a Headwind

• HK 10Y Yields: HK 10Y government bond yields have risen 153bp since May, one of the largest moves in the region.
• Financial Conditions: The HK ex-equity Financial Condition Index suggests that financial conditions are still loose, but could tighten if USD strengthens.
• Investor Positioning: The market appears over-positioned, indicating potential for underperformance unless EM risk decreases.

3. Property Sector Dynamics

• Developers vs. Landlords: The pair trade continues to show potential, with developers outperforming landlords due to better fundamentals, valuations, and catalysts.
• Property Price Drivers: Property price inflation has been driven more by monetary factors (liquidity and rates) than fundamentals.
• Future Outlook: The research team forecasts a 5% rise in home prices for 2013 and 2014, down from previous years.

4. Valuation Analysis

• Current Valuations: HK is trading at the low end of its historical valuation ranges, with a 14.7x forward P/E and a 1.3x trailing P/B.
• Relative Valuation: HK's valuation premium over the region is close to historical averages, while its premium over China remains very elevated.
• Fair Value Assessment: Based on a Dividend Discount Model, HK equities are considered fairly valued, despite optimistic growth assumptions.

5. Investment Strategy

• Relative-Return Focus: The strategy recommends focusing on relative-return trades to reduce exposure to broad market beta.
• Preferred Themes:
  • Developers vs. Landlords
  • Rising rate beneficiaries (long/short)
• Avoiding Defensives: The report advises caution on defensives and highly geared stocks due to their sensitivity to interest rates.

Key Recommendations

• Underweight HK: The overall market is underweight due to the dual headwinds of rising USD and lower potential growth in China.
• Top Ideas:
  • Developers (GSHKPDEV): Strong fundamentals, valuation advantages, and catalysts like new regulations and low-volume environment.
  • Sands China (1928.HK): Benefiting from rate sensitivity and asset turnover.
  • Cheung Kong (1.HK): Strong fundamentals and valuation.
  • LINK REIT (823.HK): Rate sensitivity and lower growth potential.
  • HKCG (3.HK): High gearing and limited growth potential.

Summary Table of Key Ideas

Stock	Name	Sector	Listed Mkt Cap (US$mn)	6M ADVT (US$mn)	Currency	Price (Quote)	GS Rating	Potential +/-(-%) to 12m TP	2013E EPSg (%)	2014E EPSg (%)	2013E P/E (X)	5yr P/E z score	2013E P/B (X)	5yr P/B z score	Property	Rate vs. Growth	High Gearing	Mass/Asset Turn
GSHKPDEV	Developers	Property	131,580	206.3	-	-	-	35%	2%	6%	13.4	(0.7)	0.7	(1.1)	√	-	-	√
GSHKPINV	Landlords	Property	89,864	126.1	-	-	-	8%	9%	5%	19.2	(0.1)	0.7	(0.8)	x	-	-	-
1928 HK	Sands China	Casino & Gaming	48,909	50.9	HKD	47.05	B	3%	75%	35%	22.6	(0.4)	7.8	(2.2)	-	√	-	√
1 HK	Cheung Kong	Property	34,262	58.1	HKD	114.70	B*	25%	3%	3%	8.0	(0.9)	0.7	(0.9)	√	√	-	√
3 HK	HK & China Gas	Utilities	22,463	22.5	HKD	18.22	N	-12%	-8%	8%	24.5	(0.4)	3.5	(0.2)	-	x	x	-
823 HK	Link REIT	Property	10,297	32.3	HKD	34.55	N	9%	-57%	-52%	10.0	(0.0)	1.0	(1.6)	x	x	-	-
2778 HK	Champion REIT	Property	2,623	3.7	HKD	3.56	S	-16%	-78%	0%	20.3	(0.0)	0.5	(0.6)	x	x	x	x

Conclusion

• The HK market is underweight due to macroeconomic headwinds.
• The focus remains on relative-return trades and specific themes like developers vs. landlords and rate beneficiaries.
• Investors should remain cautious about defensives and highly geared stocks.
• The 12-month target for MXHK has been rolled over to 13,800, implying an 8% upside.