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Thursday, 28 January 2010
Analysts keep eyes peeled on China property, bank sectors
But both analysts and Singapore companies with sizeable presence in China will keep a close eye on developments there, after last week’s news of the government putting a cap on rampant bank loans.
(SINGAPORE) The consensus opinion seems to be that China’s business fundamentals will remain favourable.
But both analysts and Singapore companies with sizeable presence in China will keep a close eye on developments there, after last week’s news of the government putting a cap on rampant bank loans.
‘Property and financial services will clearly be affected,’ said UBS chief economist Andreas Hofert on Friday. ‘Markets now have to revise their earnings expectations downwards.’
On Wednesday, China’s top banking regulator said it will control the credit growth this week, just a week after People’s Bank of China raised the reserve requirements on its lenders - the first increase in 18 months. China’s economy had grown by a scorching 8.7 per cent in 2009, but the authorities are clearly worried about asset bubbles in property and stock markets.
Singapore’s CapitaLand recently sealed a deal to buy the Chinese property assets of Orient Overseas for US$2.2 billion, while Pan Hong Property paid 221.8 million yuan (S$45.6 million) to acquire a 55 per cent stake in Nanchang Dingxun Co.
But property analysts reckoned that the adverse impact on Singapore real estate developers should be limited, both in terms of financing and valuations.
‘The ultimate aim of the cooling measures is to prevent prices from escalating too much, too quickly - especially for the masses. The banks may start to rein in lending to multiple homeowners, which is good for the market in the longer-term in reducing speculation,’ said Wilson Liew from Kim Eng.
‘The first-tier cities such as Shanghai, Beijing and Guangzhou should bear the brunt of the clamp down,’ said DMG property analyst Brandon Lee, ‘but Singapore developers generally have minimal exposure to those places.’
Instead, they are more involved in second-tier cities which should continue to enjoy strong demand from the growing middle-to-high income group of buyers - the segment which the Singapore property companies usually target.
An additional boost is expected to arise from the fact that the Chinese authorities have now allowed workers to use forced savings to buy homes outside of their work locations.
Taking a longer-term view, market watchers think the long-term fundamentals in China remain strong and should underpin demand in the property market. Said Mr. Liew: ‘In my opinion, CapitaLand’s most recent investment was also done at an attractive price, so I am still confident that the investment will pay off well.’
On the banking front, United Overseas Bank told BT that ‘the clampdown on lending announced by CBRC will not affect UOB (China) in any significant way’. OCBC felt that the guidelines to curb bank lending are still not clear and ‘it appears that the measures apply only to the domestic banks in China’, a spokesman said.
However, credit default swap spreads on the three local banks have widened sharply since the CBRC’s announcement last Wednesday and jumped again on Monday, based on data from CMA DataVision prices in New York.
Meanwhile, listed companies from other sectors told BT that they should be immune to any short-term credit tightening in China.
‘Our wastewater treatment plants and basic infrastructure projects for the municipality are typically long term in nature, and the future income from the projects are fully backed by government water tariff concessions,’ said United Envirotech chairman Lin Yu Cheng.
Therefore, he says, the credit tightening should not affect its ability to get bank financing even though it could lead to higher interest expenses.
Meanwhile, food & beverage play Super Coffeemix said its operations in China are funded by internal resources, and therefore, ‘the curbs on bank credit will have little impact on us as far as bank loans are concerned’, said its executive director James Wong.
‘And if the credit control leads to a hike in yuan value, then Super may benefit from it since some of the raw materials procured by the group are denominated in other currencies.’
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(SINGAPORE) The consensus opinion seems to be that China’s business fundamentals will remain favourable.
But both analysts and Singapore companies with sizeable presence in China will keep a close eye on developments there, after last week’s news of the government putting a cap on rampant bank loans.
‘Property and financial services will clearly be affected,’ said UBS chief economist Andreas Hofert on Friday. ‘Markets now have to revise their earnings expectations downwards.’
On Wednesday, China’s top banking regulator said it will control the credit growth this week, just a week after People’s Bank of China raised the reserve requirements on its lenders - the first increase in 18 months. China’s economy had grown by a scorching 8.7 per cent in 2009, but the authorities are clearly worried about asset bubbles in property and stock markets.
Singapore’s CapitaLand recently sealed a deal to buy the Chinese property assets of Orient Overseas for US$2.2 billion, while Pan Hong Property paid 221.8 million yuan (S$45.6 million) to acquire a 55 per cent stake in Nanchang Dingxun Co.
But property analysts reckoned that the adverse impact on Singapore real estate developers should be limited, both in terms of financing and valuations.
‘The ultimate aim of the cooling measures is to prevent prices from escalating too much, too quickly - especially for the masses. The banks may start to rein in lending to multiple homeowners, which is good for the market in the longer-term in reducing speculation,’ said Wilson Liew from Kim Eng.
‘The first-tier cities such as Shanghai, Beijing and Guangzhou should bear the brunt of the clamp down,’ said DMG property analyst Brandon Lee, ‘but Singapore developers generally have minimal exposure to those places.’
Instead, they are more involved in second-tier cities which should continue to enjoy strong demand from the growing middle-to-high income group of buyers - the segment which the Singapore property companies usually target.
An additional boost is expected to arise from the fact that the Chinese authorities have now allowed workers to use forced savings to buy homes outside of their work locations.
Taking a longer-term view, market watchers think the long-term fundamentals in China remain strong and should underpin demand in the property market. Said Mr. Liew: ‘In my opinion, CapitaLand’s most recent investment was also done at an attractive price, so I am still confident that the investment will pay off well.’
On the banking front, United Overseas Bank told BT that ‘the clampdown on lending announced by CBRC will not affect UOB (China) in any significant way’. OCBC felt that the guidelines to curb bank lending are still not clear and ‘it appears that the measures apply only to the domestic banks in China’, a spokesman said.
However, credit default swap spreads on the three local banks have widened sharply since the CBRC’s announcement last Wednesday and jumped again on Monday, based on data from CMA DataVision prices in New York.
Meanwhile, listed companies from other sectors told BT that they should be immune to any short-term credit tightening in China.
‘Our wastewater treatment plants and basic infrastructure projects for the municipality are typically long term in nature, and the future income from the projects are fully backed by government water tariff concessions,’ said United Envirotech chairman Lin Yu Cheng.
Therefore, he says, the credit tightening should not affect its ability to get bank financing even though it could lead to higher interest expenses.
Meanwhile, food & beverage play Super Coffeemix said its operations in China are funded by internal resources, and therefore, ‘the curbs on bank credit will have little impact on us as far as bank loans are concerned’, said its executive director James Wong.
‘And if the credit control leads to a hike in yuan value, then Super may benefit from it since some of the raw materials procured by the group are denominated in other currencies.’
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