Time for a little prudence in real estate names

10 Aug

Shanghai closed down for a 4th consecutive trading day – the longest negative trend in 2009.  The index is down 6.4% from its peak a few days ago on the 4th August.

The biggest losers were real estate and energy companies, as investors became concerned that loan growth would slow, and reduce power demand (see https://ravendragon.wordpress.com/2009/08/09/electricity-consumption-vs-gdp-growth/) and building.

As discussed in previous posts, first-half lending in China grew 300% yoy to a massive CNY7.3bn.  Too much liquidity opens the risks of an asset bubble.  In my opinion investors are correct to be prudent at this stage, and wait to see how the government continues fine-tuning monetary policy and flows before expecting upside in real estate and related names.

In addition, I would not characterize the market as a bubble, and feel the Government is correct in its ‘fine tuning’ policies and attempts to calm lending in 2H09 – i.e. this should prevent a bubble from fermenting

[Note-  the the Hang Seng ended on an 11 month high, with mainland banks recouping some of their recent loses on expecatations of earnings upgrades by analysts].

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