Is Hong Kong property near the bottom?

Following recent declines in indexes.

Over the past week, the Hang Seng Index and the Hang Seng Property Index have fallen by 10.2% and 11.4% to 52-week lows.

According to a research note from Barclays, it was prompted to ask this question: Is Hong Kong near the bottom?

Barclays noted that it took a three step approach in answering this question. In the first two instances, it compared current NAV discounts and price-to-book ratios against past crisis levels as well as long run averages.

Given investor concerns that book-value may have become inflated in recent years, Barclays also compared current share prices against 2011 trough levels.

Here's more from Barclays:

Some of our key findings include:

Discounts to NAV: Developers and landlords' current discounts to NAV now stand at 53% and 51%, some 1.2SD and 1.4SD below their long-run averages. Compared to past crises, the most stressed level for developers and landlords were 65% and 69% in 1998. Among the individual companies, in absolute terms, NWD (62%), Kerry (62%) and Wharf (59%) have the steepest discounts to NAV. Relative to its own history, Wharf's 59% NAV discount is the most depressed at 2.1SD below its average.

Trailing price-to-book: From a PB angle, developers and landlord's current 0.63x and 0.52x PB are 1.5SD and 1.7SD below their respective long term averages. The most depressed level for the developers was 0.59x during the 2008 Credit Crisis and 0.42x for the landlords. At the individual company level, in absolute terms, Wharf (0.41x), Kerry (0.41x) and NWD (0.42x) have the most depressed PBs. Relative to their own history, Wharf and SHKP's PBs are the most depressed at 1.8SD and 1.7SD below their respective averages.

Share prices relative to 2011 trough: With physical office rents and retail sales back to 2012 levels, we cross check current share prices versus post 2011 lows. Most stocks remain well above the 2011 trough with Hang Lung, Kerry and SHKP closest to their post-2011 lows.

Risk versus reward, cash is king? Although we have a long-term cautious view on the Hong Kong housing market, we are constructive on certain property stocks. This is especially the case for property companies that have prepared well in advance of the current uncertainty by de-leveraging and raising cash.