HSI Downside Pressure Points and Late November Cycle Inflection

Portfolio Manager/Head of Equity Investment, Tandem Investors Limited

Jason Oh

Portfolio Manager/Head of Equity Investment

Tandem Investors Limited

Equity Bottom-Up

China Overseas Land & Investment / Equity Bottom-Up

China Overseas Land & Investment (688 HK)

Newly included in Asia Pacific model portfolio at 4.4% We newly included <a href="https://www.smartkarma.com/entities/419" target="_blank" data-smartkarma-citation="entities:419:1">China Overseas Land &amp; Investment Ltd. (688 HK)</a> at the weight of 4.4% in our Asia Pacific long-short model portfolio due to the followings; 1) Even though there are lots of obscurities in the new US administration's economic policy yet, we believe inflation is the most probable agenda, therefore, investment in real estate is one of the best strategies to make the most of it, 2) given the recent government tenders of new landbank in HK, mainland Chinese developers are dominating the HK-based developers especially in Kai Tak area. we believe this trend will continue and the company is ahead of the peers in many aspects, 3) The company's TFS(Tandem Fundamental Score) is 0.65, which means the current price is somewhat undervalued compared to the company's fundamental, according to our quant model, 4) The company's weekly TTS(Tandem Technical Score) is 1.33, implying the share price is highly likely to rise in the mid-term.China Property market is now more driven by urbanization rather than speculation  Given the low urbanization ratio, consolidating market share and slowing down of inventory in 1st and 2nd tier cities' residential market, China property market looks more driven by real demand, following the trajectory of Korean market a decade ago. We expect the 1st and 2nd tier markets' demand and supply should be tight for the time being due to the strong demand from the people who want to live in more convenient lifestyle, while 3rd tier cities may continue to struggle due to the ugly demographics and continuous urbanization trend.Valuation is near historical low, providing attractive entry points  Despite the strong fundamental characteristics, such as strong leadership in the market, healthy balance sheet, nationwide diversification of landbank and projects, and successful penetration into HK market, the company's share price is trading near the trough valuation at a deep discount compared to the peers. We believe it's attributable to the worries on China property market and currency, which is overdone in our view.

Newly included in Asia Pacific model portfolio at 4.4% We newly included China Overseas Land &amp; Investment Ltd. (688 HK) at the weight of 4.4% in our Asia Pacific long-short model portfolio due to the followings; 1) Even though there are lots of obscurities in the new US administration's economic policy yet, we believe inflation is the most probable agenda, therefore, investment in real estate is one of the best strategies to make the most of it, 2) given the recent government tenders of new landbank in HK, mainland Chinese developers are dominating the HK-based developers especially in Kai Tak area. we believe this trend will continue and the company is ahead of the peers in many aspects, 3) The company's TFS(Tandem Fundamental Score) is 0.65, which means the current price is somewhat undervalued compared to the company's fundamental, according to our quant model, 4) The company's weekly TTS(Tandem Technical Score) is 1.33, implying the share price is highly likely to rise in the mid-term.China Property market is now more driven by urbanization rather than speculation  Given the low urbanization ratio, consolidating market share and slowing down of inventory in 1st and 2nd tier cities' residential market, China property market looks more driven by real demand, following the trajectory of Korean market a decade ago. We expect the 1st and 2nd tier markets' demand and supply should be tight for the time being due to the strong demand from the people who want to live in more convenient lifestyle, while 3rd tier cities may continue to struggle due to the ugly demographics and continuous urbanization trend.Valuation is near historical low, providing attractive entry points  Despite the strong fundamental characteristics, such as strong leadership in the market, healthy balance sheet, nationwide diversification of landbank and projects, and successful penetration into HK market, the company's share price is trading near the trough valuation at a deep discount compared to the peers. We believe it's attributable to the worries on China property market and currency, which is overdone in our view.

China Overseas Land & Invest: Ride on Inflation