BETA KING HOUSE BLOCKS, INVESTMENT LOGIC AND OPPORTUNITIES
THE OPINION OF THE AUTHORS ON HONG KONG STOCKS HAS BEEN CLEAR IN THE PAST. WE WILL START TODAY TO KEEP AN EYE ON SOME HIGH-BETA BLOCKS FOR EVERYONE. IF YOU DO NOT UNDERSTAND THE INVESTMENT LOGIC OF HONG KONG STOCKS AT THE MOMENT, YOU CAN KEEP AN EYE ON THE FOLLOWING KEY ARTICLES.
0925:「HOW FAR CAN THIS UPSWING GO?」
0926:「During the Hong Kong Stock Bounce: Common Investor Misjudgments and Countermeasures」
0930:「Initial Psychological Changes in the Hong Kong Stock Market: The Transition from Alpha to Beta」
Interior room history review
Before we understand the investment logic of indoor housing blocks, we first need to fully understand the role of indoor housing in the bear market of the past four years. WHY INDOOR HOUSING IS THE HIGHEST BETA SEGMENT IS BECAUSE OF THE RISK POSED BY THE REAL ESTATE MARKET, WHICH HAS ALWAYS BEEN A MAJOR REASON FOR THIS BEAR MARKET.
Three Red Lines Policy
The Three Red Lines of Domestic Housing Policy was introduced by the Chinese government in August 2020 to curb excessive borrowing and financial risks in the real estate industry. At the heart of this policy is to require large property developers to follow three key red lines when financing: first, a debt ratio of no more than 70%; second, a net debt ratio of no more than 100%; and third, a cash short-term debt ratio must be greater than 1. These standards are designed to promote the healthy development of the real estate market and prevent excessive speculation and bubble risks.
However, since the policy was implemented, many home equity firms have faced financial pressure, particularly those with weaker financial conditions, and some businesses even defaulted on capital. As corporate risk intensifies, the market also fluctuates sharply in the share prices and debt prices of domestic housing enterprises.
What's more, after the policy is implemented, many unexpected problems continue to occur. For example, the problem of “external debt” that is often heard, has found that many companies have hidden debts, resulting in many companies even receiving three green lights, but ultimately still facing the result of debt defaults.
The Latest Interior Investment Environment
We are not currently going to review and discuss the effectiveness of past policies. What we need to understand is that, after four years of developments, the turbulence in house prices in the Mainland has cooled, and many property market restrictions have been almost completely abolished. With a series of recent fiscal and monetary policies, the market is anticipating that the worst of the industry is over.
When it comes to talking about the worst of the moment, many investors have the misconception that the property market is about to see a V-shaped bounce. In fact, as long as property prices stagnate or rebound slightly, developers can sell the property smoothly and complete the delivery, which is already the worst of times. The recent decline in mortgage rates and the increase in the size of local debt are the main drivers behind the worst of times.
Domestic Housing Stock Options
In this worst-case scenario, we need to be clear about investing and speculating. The investment is to see a slow recovery in the real estate industry, and as a major bank report earlier this year said, this recovery cycle is likely to happen until 2025, which means it will take longer to certify. Speculatively, the benefits of borrowing from the real estate industry are that some houses with a high risk of default may be successful; a more advanced idea is that some of those with a default risk may be “reborn” after debt restructuring. In the process, issues related to risk and return will be considered.
In terms of domestic housing stock, we can roughly divide into three main categories
1. Lower risk of debt default
2. Higher risk of debt default
3. Debt delinquencies issued
Overall, the choice to invest or speculate depends on the individual situation and there is no best answer. However, if investors do not yet understand the above-mentioned views, a smooth investment route may be preferable (considering only type 1 and 2 stocks).
Industry Investment Preferred
$CHINA OVERSEAS(00688.HK)$ 、 $CHINA RES LAND(01109.HK)$ 、2423 $BEKE-W(02423.HK)$ It is an object that writers in the industry consider to be more worthy of attention.
The former are property developers who have also followed the sector's decline in the bear market over the past four years, but have fallen far short of their peers. In the harsh environment of the past four years, their bond prices have been relatively stable, both in domestic and foreign markets, indicating that the market is relatively unconcerned about their risk of debt default. As the current industry climate improves, the company's ability to sell buildings will be fully reflected, and the company's financial position is healthy, and there will be more opportunities for acquisitions and mergers in the future.
As for Shell, the household-related industrial chain that the author paid attention to in May last year, mainly benefited from the company's good competitiveness in the agency sector and a river of customers. The company also started making inroads in the real estate industry this year by buying premium flooring in Chengdu, which led to the stock price falling back from its highs in May this year, but with the recent market sentiment improving, this move is now seen as a positive signal by the market.
One thing you can see from the performance of the companies above is that companies with stable cash flow and low debt levels may have more acquisition and merger opportunities in the industry at the worst of times.
Industry Speculative Shares
As for the speculation preference, individuals will pay attention $LONGFOR GROUP(00960.HK)$ 、 $CHINA VANKE(02202.HK)$ und $SUNAC(01918.HK)$ 。 The three are dominated by debt default fears at the end of the bear market, while China's meltdown is currently in the midst of a debt restructuring. But given the company's ability to perform in past bear markets, the former are stocks that measure risk and return; the latter are Class 3 stocks that are high-risk, high-return.
As for other housing stocks, the typical high risk and high return does not mean that you cannot buy, but there is so much variety involved that it is difficult for the authors to analyze them individually.
In the final analysis of speculation, while the above three stocks may have a high return in this bull market, the authors believe that if deployed in the form of options or warrants, the valuations will not be bad. The benefits of rising extrapolation waves can also be earned during speculation.
The author also recommended 688 warrants on Investalk this morning
There are also recommendations at the same venue $Hang Seng Index(800000.HK)$ SUBSCRIPTION CERTIFICATE
For a more detailed analysis of the interior building block, please leave our October 8 investment talk to you for more details.Those who are interested remember to register to participate.
Chief Analyst of Futu Securities Liang
Derivative instrument products owned by author 1109
(The author is a licensee of the Securities and Exchange Commission and its affiliates have no financial interest in other proposed share issuers)
