Real Estate Stocks In China Enjoy Resurgence

The People's Bank of China's war on the property market has been easing.

After a period of tighter credit and administrative obstacles to big-city property buyers, the central bank has been lightening up for the past year. And real estate stocks are gaining on hopes of more leniency to come.

The real estate development and operations industry group on the Hong Kong stock exchange ranks No. 29 out of 141 groups tracked by IBD. It's been no lower than No. 35 for the past two months.

(IBD divvies up foreign markets into groups just as it does for the U.S., although the number of groups varies from one country to another.)

Typical of Hong Kong listings, the best names are incorporated in Hong Kong but operate mostly in mainland China.

But while these stocks' charts may look great, they suffer serious fundamental flaws.

Remember, Hong Kong stocks are priced in Hong Kong dollars, which run at 7.75 to the U.S. dollar. These companies report results twice yearly.

China Resources Land ended Thursday 3% below its 15.34 buy point from a six-week cup. The stock had risen as much as 10% before backing off, and now sits 3% below its 50-day line.

It boasts a 1.6 up-down volume ratio and a solid B Accumulation-Distribution Rating.

But China Resources saw its EPS growth shrink 3% in the first half of 2011, although the second half saw a 59% surge. Revenue swings were even wider in those two periods, moving from a 38% drop to a 112% rise.

Also troubling, full-year 2012 earnings are expected to fall 19%.

China Overseas Land & Investment operates mostly in mainland China. The stock is testing its 10-week line, where it has been finding support for almost two months. EPS rose 35% in last year's H1 and 13% in H2. Revenue rose 25% in H1, but was flat in H2. Earnings are expected to fall 1% this year.

These are the two best names in a group that includes 107 companies.

For access to China's property market in the U.S., there's the Guggenheim China Real Estate (TAO) exchange traded fund.

The GCRE's holdings are dominated by big-cap stocks, with a focus on value rather than growth.

Such an approach makes sense in China, some analysts say. Many smaller companies are struggling after the central bank's bubble-fighting moves.

The big-cap companies are better poised to move forward with lots of cash, and are said to be waiting for a slate of distress property sales to pick up bargains.

Source: http://news.investors.com/article/620746/201208021634/chinas-real-estate-stocks-enjoy-resurgence.htm