Saturday 20 December 2008
Sudden Property Play and Fed Rate Cut Take Centrestage
As themes go, it’s probably as good as any, coming at a time when activity was subdued, volume low and the Wall Street mood seemingly positive. We’re speaking here of the sudden push on property stocks that stood out this week and helped propel the Straits Times Index up midweek and for most of yesterday before running into a wall of selling in late afternoon.
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Sudden Property Play and Fed Rate Cut Take Centrestage
By R SIVANITHY
20 December 2008
As themes go, it’s probably as good as any, coming at a time when activity was subdued, volume low and the Wall Street mood seemingly positive. We’re speaking here of the sudden push on property stocks that stood out this week and helped propel the Straits Times Index up midweek and for most of yesterday before running into a wall of selling in late afternoon.
The main beneficiary was CapitaLand, Keppel Land, City Developments and China’s Yanlord, but there was a spillover push on almost all others, including some of the smaller developers.
The source of the sudden property play was an announcement by the China government that it intends to revive the country’s sinking property market via more relaxed stance towards bank lending to China developers.
As a result, CapitaLand, which is a Singapore developer and has no solvency issues, shot up 56 cents or 20 per cent throughout the week to $3.30 and CityDev by 96 cents or 16 per cent to $6.98. Buoyed by this - as well as hopes that funds will have to indulge in hefty window-dressing next week - the STI gained 55 points over the week at 1,795.47 although it dropped 3.48 yesterday.
Morgan Stanley yesterday issued a report on the property play but said it was too early to turn positive.
‘While the (China) news is positive, our China property team believes it is too early to call a recovery in the physical market, awaiting clarity on macro growth expectations and domestic stock market recovery.’
It added that because CapitaLand and Keppel Land were never faced with insolvency or refinancing issues, the recent run-up was unjustified and, because both are exposed to Singapore asset-devaluation risk, it should mean both will trade downwards.
In a separate Research Tactical Idea, MS said there was a 70-80 per cent or ‘very likely’ probability that CapitaLand and Keppel Land will fall over the next 45 days because the market had over-reacted to measures announced by the Chinese authorities. In the case of Keppel Land, MS said not only were valuations not compelling, there was downside risk to the company’s Singapore office portfolio.
‘Not yet’ was also the recommendation made by Macquarie Research with regard to another property play, Hongkong Land. It downgraded the stock from ‘neutral’ to ‘underperform’ given the recent run-up in share price and maintained a price target of US$2.32.
‘We are just two months into a (HK) office market downcycle that may last two years if past cycles are any guide,’ said Macquarie. HK Land dropped 4 US cents over the week to US$2.40.
Other than a property focus, the other major development was Tuesday’s surprisingly generous interest rate cut by the US Federal Reserve which took its Federal funds rate to close to zero.
This was accompanied by a statement that the Fed will probably keep the rate at this level for as long as it takes as well as a statement that it will use its balance sheet to its utmost effect to try and stimulate a recovery.
The boost this gave to Wall Street was only temporary, the market there rising on Tuesday but dropping sharply on Wednesday and Thursday. As some observers have noted, the Fed’s actions had already been anticipated for some time now and were not new.
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