Hong Kong blue chips have been pretty resilient in the past few years. While China and the U.S. has experienced some recent volatility, many stocks in the region had been immune until now. Recently, the bottom fell out of the real estate market. If you know anything about Asia, investors love real estate and most stocks have considerable holdings.
We'll start with Jardine Matheson (JMHLY, Financial). I've written on the stock many times, including one on Jan. 17. At the time, I estimated the stock traded at a discount to NAV by 20%. Jardine owns 50% of Hong Kong Land (HNGKY, Financial). According to Bloomberg, home sales fell 70% last month. Wow! Sales amounted to 1,087 this February, a drop from 6,027 in the prior year. Prices are down 10% from September and the consensus is for a 15% drop this year.
Hong Kong Land owns an abundance of class A condos all across Asia. Some of these names include Alexandra House, Serenade and The Forum. The stock started trading in Singapore at $6.15 and ended the day at $6. Jardine's pink sheet ADR is down 4.3% as I write this.
Earnings per share for Jardine in 2015 were down 12% to $3.65. NAV was $53.47. The real estate slump is sure to affect this company.
Here's a link to a tiny little 470 square foot apartment that I found for sale in Hong Kong for $750,000. It rents for a little over $2,000 a month. It's in Happy Valley where the horse racing track is located. A search from the same page in the link above brings you to a 286 square foot apartment in Central, the most desirable place. It rents for $1,800 a month and is for sale for $1.1 million. Wow! That's expensive.
Another great blue chip in the region is Swire Pacific (SWRAY, SWRAF, SWRBY, SWRBF). One of Pacific's major holdings is Swire Land. Like Hong Kong Land, Swire Land owns an abundance of property on the island including Alassio, Arezzo, White Sandis, and Opus. You can bet they will be hit by the slump, too.
A recent article from the Financial Times discusses how value stock pickers have been buying shares in Sun Hung Kai, Wharf, Henderson and Swire. The buying has caused a spike in shares but I doubt if it lasts long. It reminds me of a classic bubble -- buyers at the end driving the share back up before a big drop.
I wouldn't own these stocks at this point and if you hold them, I'd recommend you sell them. Great companies, but a lousy time to hold the stocks. Asia goes through booms and busts and it's ready for a big pullback. I'd buy these stocks at the right time but certainly not now.
