Morgan warns over HK property stock

HONG KONG'S property shares, the lifeblood of the equity market, have been a sure-fire bet in recent months, rising steadily on sustained hopes that house prices in the territory are on the turn as demand picks up.

But while the wider economy is seen gathering pace through until the end of this year and into 2004, JP Morgan's team is signalling that developers' shares may have run far ahead of fair value. Some could fall as much as 25%, it says.

Analyst Douglas Sung estimates that there will be a shade more than 28,000 new units on offer each year for the next three years. Maximum demand from locals, speculators and immigrants is put at 26,000 units, however.

'We therefore expect generally flat housing prices this and next year, before recording a more meaningful increase in 2005,' Sung said.

'Currently developers' valuations have factored in a 20-plus increase in housing prices. If prices fail to rise, the stocks may have to fall 25% before returning to fair values.'

Although there was widespread evidence of profit-taking today after rosy third- quarter growth data from the US, developers still managed to eke further small rises. Cheung Kong, sector bellwether and part of billionaire Li Ka-shing's corporate empire, firmed 25 cents or 0.4% to HK$64.75, while Sun Hung Kai Properties was 50 cents or 0.8% stronger at HK$65.50. The 33-member Hang Seng index was a touch weaker, down just 0.2 points at 12,143.16 as brokers said investors were content to lock in recent advances.

Some exporters did get a lift, however, from the US data. Li & Fung, dented this week as key shareholder Anglo American sold is stake, rebounded 15 cents or 1.2% to HK$13.05, and micro-motor maker Johnson Electric rose five cents or 0.5% to HK$10.20.

PCCW, the telecoms play, suffered from profit-taking, losing five cents or 0.9% to HK$5.60. Much the same scenario was played out in Japan as fund managers cashed out even as the good news on the US economy dominated the news.

Wall Street's tepid performance gave impetus to the sell-down as the Nikkei 225 declined 135.97 points to 10,559.59. Banks - ever the volatile sector - were particularly scarred. Mizuho Financial, the world's top lender by assets, dived 16,000 yen, or 5.6%, to 270,000; UFJ slumped 20,000 yen, or 5.5%, to 465,000; and Sumitomo Mitsui Financial traded at 558,000 yen, lower by 24,000 or 4.1%.

Chip-related stocks, buoyed in the middle of the week by a robust global forecast, also consolidated. Tokyo Electron was typical of the day's shift as it lost 220 yen, or 2.7%, to 7920.

One company that managed to buck the trend was consumer electronics giant Sony, which relies on US demand for much of its revenue. It gained 70 yen or 1.9% to 3860 yen.

In Australia, transport group Patrick, half-owner of discount carrier Virgin Blue, said that the airline's impending IPO would garner A$400m (£166m). Its shares gained 23 cents or 1.6% at A$14.59.

The All Ordinaries index was 3.4 points or 0.1% softer at 3281.2 as profit-takers predominated. Qantas Airways, part-held by British Airways, fell six cents or 1.6% to A$3.60.