2015 half-yearly stock-take
We introduced our "Back to Fundamentals" series in August 2014. We plan to roll-out half-yearly updates to input actuals and adjust for any changes in the underlying variables. We haven't made any changes to the formulas in our base analysis.
We revise up our HK residential price forecasts for 2015, reflecting a later & slower Fed rate hike cycle in line with our economic teams' forecasts. Prices decline modestly (- 2.3% in 2016) as the Fed rate hikes take effect. We revise up our HK office rental forecasts for 2015, reflecting the pick-up in mainland financial services demand. Australian residential price forecasts are marginally higher, given lower mortgage rates. Implications – Hong Kong and Australia.
We started the year positive HK office with HK Land & Champion REIT our key picks. We retain this view. We also like Swire Property which has lagged and should now benefit from spill-over demand with Central vacancy tight, at 2.5%. We continue to like Australian residential & discretionary retail, both benefitting from lower interest rates and a weaker AUD which is underpinning a rebound in net tourism numbers. The poor capex data increases the likelihood of another rate cut. Scentre Group and Stockland are our kick picks, but we also like Mirvac. We also own Westfield Group in our global model portfolio, with US$0.76 of value expected to be realised from its development pipeline, plus a beneficiary from a depreciating AUD.
Implications – Singapore and Japan.
In Singapore, the physical markets are peaking, with rental growth rates moderating and likely to turn negative in the case of office. We like CRCT (China mass malls) where rental reversions remain strong and Beijing retail fundamentals supportive of further rental growth and UOL Group among the developers. In Japan, we favour the developers over the JREITs, given relative pricing. We own Mitsubishi Estate and Orix (8954) in our global model portfolio, but also like Kenedix Retail REIT (3453), GLP JREIT (3281) and Mori Hills REIT (3234) among the JREITs. (Read Report)
Source : UBS Global Research