Property asset inflation boosts stock market

By THE EDGE

The stock market will continue to gain, particularly property stocks on the back of a “serious bout of property-based asset inflation”, said Credit Suisse Research.

In a strategy report released yesterday, the foreign research house said property asset inflation was due to wealth effect of the stock market, government pump-priming and foreigners snapping up high-end property due to it being relatively undervalued coupled with an undervalued currency.

“Malaysia is poised for a serious bout of property-based asset inflation. This is as a result of changes in government policy, at a time when the economic environment is ripe for inflation.

“We believe that this will have positive ramifications for the stock market,” the research house said.

It further stated that the rise in the stock market would have generated tremendous wealth and should act as a stimulus for domestic consumption.
In the past one year, the stock market has gone up by 53%.

Credit Suisse also said that Kuala Lumpur could be the next property play after Hong Kong and Singapore.

“Visiting fund managers have been deviating from the normal routine of company visits to view property developments in Kuala Lumpur, Penang and Johor.

“Having seen the rapid price movements of property in Hong Kong and Singapore, there is the belief that Malaysia may be the next market to move,” it said.

The undervalued ringgit combined with a relatively undervalued Malaysian property market compared to its regional peer group may be a driving force to foreigner’s interest in the property market here.

The research house said that other reasons for a rise in foreign house-hunting in Malaysia were the ease of carrying out such transactions, Malaysian banks lending up to 70% of valuation, freehold status, no real property gains tax and an English-based legal system.

“There is real and circumstantial evidence pointing to Middle Eastern money finding a home in Malaysia. Inevitably, this money is most likely to invest in property assets rather than corporations,” Credit Suisse said.

However, the research house noted that locals are not jumping on the bandwagon.

“The locals have yet to become positive on the Malaysian property market.

“This is a trend that we have seen most recently in Singapore, where it took a major move before the average citizen became convinced,” the research note stated.

“We would argue that it is just a matter of time before the rest of the market gets moving,’ it added.

Apart from investing into physical property, Credit Suisse said in its view SP Setia was the only large-liquid stock. IOI Properties is a less liquid alternative.

The brokerage said investors could also find exposure in real estate investment trusts or companies with significant property earnings such as Gamuda and Synergy Drive.
It said that there are some 100 listed property companies, many which are small and illiquid.

“These small-cap developers can have significant increases in market cap as they buy new land and deliver earnings,” said Credit Suisse.

The research house said apart from a play from property stocks, corporate earnings and mergers and acquisitions (M&As) activities would continue to be potential catalysts for the local stock market.

“We believe that M&A is generally good for markets in that it removes mis-priced assets and can lead to larger, better managed companies,” it added
Credit Suisse expected M&As to be driven by factors such as gross domestic product, continued strength in crude palm oil prices and the restructuring of government-linked companies.

“As the pace of pump-priming picks up, whether it be by means of construction contracts or the effects of the civil service pay hike, it will ensure that GDP growth is in excess of 6% is a given, in our view.

“This clearly bodes well for corporate earnings,” Credit Suisse noted.

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