At These Levels, Investors in This Market Have Always Made Money
By Tom Dyson
December 3, 2008
Last week, I traveled up the world's longest indoor escalator... rising 12 floors to the ceiling of a mall.
"Don't look down," said my guide, giving me a wink. "Sometimes it makes people feel sick."
My guide was the property manager of Langham Place, a major Hong Kong shopping center. Langham Place has 13 levels.
It's not optimal for a retail space to have so many floors. It's harder for shoppers to find their way around... and you need lots of elevators and escalators to move people from floor to floor. But in Hong Kong, there isn't room for the sprawling malls we have in the U.S., so they have to make the best of the situation.
Langham Place solved the problem by constructing its building as a corkscrew. The world's largest indoor escalator transports shoppers from the ground floor to the ceiling. From there, they walk back down – around and around in a spiral – until they reach the ground floor again.
I spent last week in Hong Kong checking out the commercial property market. In yesterday's column, I showed you how cheap Hong Kong property stocks are from the perspective of one company, Champion REIT.
Champion REIT owns a landmark office tower in Central Hong Kong and the "corkscrew" mall in the Kowloon neighborhood. Investors have dumped Hong Kong property stocks with such fury, Champion now trades at an 80% discount to its net asset value and yields 18%.
On Monday, I saw a presentation given by Peter Churchouse. Peter ended up in Hong Kong as Morgan Stanley's Asia man for a long time. He left Morgan Stanley to start an Asian real estate stock hedge fund. And he probably knows more about Asian property markets than anyone else in the world.
Peter showed how investors have dumped all Asian property markets this year...
Here's one slide he presented. It shows the fall in property stocks this year in some of the major Asian economies. (These declines are in local currencies. In dollar terms, many of these falls would look even worse. The Indian rupee, for example, is down 21% this year against the dollar.)
Country |
Index |
YTD Decline |
Japan |
TSE REIT |
-60% |
Hong Kong |
HIS Property |
-63% |
Australia |
ASX Property Trust |
-58% |
Singapore |
Singapore Property Index |
-63% |
China |
H Share Property Stocks |
-73% |
India |
BSE REAL |
-87% |
Malaysia |
KL Property Index |
-50% |
Thailand |
SET Property |
-60% |
Philippines |
PPROP |
-64% |
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Is it time to invest in Asian property? Peter Churchouse says it is.
One measure of valuation Peter likes to use is the price-to-book ratio. Peter says that when investors bought Asian property stocks below book value, historically, they have always made money over the next three years. After 12 months, the median gain is about 15%. After two years, it's 19%. And after three years, investors are up 42%.
Here's how Asian real estate looks now...
Region |
Current Price-to-Book Ratio |
Hong Kong |
1x |
Asia Ex-Japan |
1.1x |
Malaysia |
1.5x |
Thailand |
1.2x |
Singapore |
1.1x |
|
Take Singapore REITs, for example. They are paying 15% dividend yields... and many of them are backed by large investments from the Singapore government.
If you want safe investments with high yields, I urge you to take a look at Asian property stocks. You can buy them with an E*Trade account or through any decent international stock broker...
Good investing,
Tom
Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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MORE STOCKS TO ADD TO THE "REBOUND LIST"
Another asset to add to your rebound list… an asset that goes by the name "submerging markets" these days.
The real name for today's rebound asset is "emerging markets." These are stocks in high-growth economies like India, Brazil, and China. When times are good, investors go wild for these stocks and drive them up hundreds of percent. Brazilian stocks, for instance, gained more than 1,000% from 2003 to mid-2008. But when times are bad, emerging markets get destroyed. Brazil is down 70% from its summer high.
Here's the thing about market rallies after a big decline: The assets that have been beaten down the most are the ones that rally the most. Our friend Jeff Clark likens this situation to a basketball pushed down to the bottom of a swimming pool. The farther it gets pushed down, the harder it comes back up.
Emerging markets are now trading for super-cheap levels… most go for less than 10 times earnings and around book value. Like infrastructure stocks, emerging markets have big potential when the stock market puts together a rally.
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The number of consumers with delinquent mortgages is poised to almost double by the end of next year, hitting its highest level in at least 16 years, according to a leading credit bureau.
TransUnion LLC, which analyzed about 27 million consumer records in its database, predicted that the proportion of consumers with mortgages that are 60 days or more past-due will hit 7.17% in the fourth quarter of 2009.
That would be the highest level reached since the Chicago credit bureau – which is releasing the data on Tuesday – first started tracking these statistics in 1992. It compares with an expected delinquency rate of 4.67% at the end of 2008.
The big culprit is adjustable-rate mortgages that were underwritten several years ago, when lending standards were loose.
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Spain's car manufacturers on Monday reported a 50 percent drop in sales in November compared to the same period a year ago, the second worst annual drop on record and the latest sign of the country's sharply weakening economy.
Automobile trade association ANFAC said 63,068 vehicles were sold last month, down 49.6 percent from the 125,206 sold in November 2007. Sales so far this year are down 26 percent at 1.08 million.
ANFAC said the credit squeeze was responsible for much of the decline, given that some 80 percent of car sales are bought on installment.
November's figure represented the biggest monthly drop since a record 53 percent decline in January 1993, ANFAC said. |
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