Is It Time To Buy Property Stocks?
More carnage ahead for stock and property markets
Yesterday, the Fed announced a 0.75% hike in interest rates to try to rein in inflation. The Fed also cut its GDP forecasts for 2022 and 2023. A bit too late I think to avert a probable recession next year. US stock market indices have already moved into bear market territory on Monday. The Fed's move will I think spark a fresh round of sell offs in stockmarkets around the world. Investors will be assessing the impact of the Fed increasing interest rates at a time when economic growth post pandemic is just picking up.
Property stocks in Malaysia are likely to be hit hard if Bank Negara Malaysia ever lets interest rates go back to their “normal” levels in 2023. Why? Higher interest rates dampen demand for housing loans. Existing home buyers on variable rate mortgages will face difficulty paying loan installments to their banks if interest rates (now at historic 20 year lows) go back to “normal” levels in the past. See chart below.
Some over leveraged home buyers might even see their properties put on auction if they fail to pay higher loan installments.
When Is It Time To Buy Property Stocks
As a former professional “stock picker” aka investment analyst in another lifetime (ie late 1980s to 1990s), I found Hong Chew Eu’s recent article, “How to value property stocks: using a house valuation approach” an interesting read . He is a value investor who has contributed several articles to property portals on using fundamental analysis to pick property stocks. If Malaysia ever follows the US into recession next year, there might be bargains in the property sector for brave investors.
In my opinion, fundamental analysis is out of fashion these days. Except for a few notable exceptions (Warren Buffet, Bill Hwang, Tong Kooi Ong, Cheah Cheng Hye come to my mind) analysts and fund managers using fundamental analysis to pick stocks are the last of a dying breed.
In my hey day, though, equity analysts were “stars”, courted by the media for sound bites and trotted out regularly to recruit aspiring interns. These days, you just need to take a look at the HR websites of stockbrokers for internships. There are hardly any star equity analysts anymore featured on internship recruitment websites, sharing their career strategies. Why?
I think the smartest interns in 2022 want to work in fixed income, bonds and ETFs. More money. Better prospects. Not in equity research. As a rookie investment analyst in the 1980s I cut my teeth in fundamental analysis at a start up Hong Kong HQ based stockbroking company with a famous blue and yellow corporate logo. Some 30+ years later, the start up stockbroking house I joined in Red Dot Island is now the proverbial 800 kg gorilla in the field of investment banking in Asia. On its website, my old firm now talks about its AI driven Adaptive Algo Trading Model as a USP. No mention of their award winning star investment analysts.
Pattern recognition for stock picking used to be done by investment analysts with Excel spreadsheets to calculate Price Earnings or Price RNAV ratios Nowadays pattern recognition for stock picking is increasing done by supercomputers running sophisticated algorithms employing machine learning technology and Neural Networks. I think but cannot be 100% certain that probably requires the skill sets of a math genius or at least a PhD to program.
Post Script & Disclaimer
1 I track the auction KL property market in my blog 360 KLCC. Last year, I posted a write up, “Get ready the popcorn. KLCC sale in 2022?”
See also my other posts on auction properties at 360 KLCC:
What KLCC auctions say about the state of the KL high end property market.
2 My last Investment Advisor's license in another jurisdiction expired circa 2001. My blogs on property at 360 KLCC and Real Estate Marketing 101 are based on my 20+ years experience investing in the KL property market and board experience in several owners' corporations. They should not be considered as investment advice.
3 Hong Chew Eu and yours truly are alumni of the same UK School of Business. This post is a revised update to my earlier (deleted) LinkedIn post on Hong Chew Eu's “How to value property stocks using a house valuation approach”
