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At These Levels, Investors in This Market Have Always Made Money

By Tom Dyson, publisher, The Palm Beach Letter
Wednesday, December 3, 2008

Last week, I traveled up the world's longest indoor escalator... rising 12 floors to the ceiling of a mall.

"Don't look down," said my guide, giving me a wink. "Sometimes it makes people feel sick."

My guide was the property manager of Langham Place, a major Hong Kong shopping center. Langham Place has 13 levels.

It's not optimal for a retail space to have so many floors. It's harder for shoppers to find their way around... and you need lots of elevators and escalators to move people from floor to floor. But in Hong Kong, there isn't room for the sprawling malls we have in the U.S., so they have to make the best of the situation. 

Langham Place solved the problem by constructing its building as a corkscrew. The world's largest indoor escalator transports shoppers from the ground floor to the ceiling. From there, they walk back down – around and around in a spiral – until they reach the ground floor again.

I spent last week in Hong Kong checking out the commercial property market. In yesterday's column, I showed you how cheap Hong Kong property stocks are from the perspective of one company, Champion REIT.

Champion REIT owns a landmark office tower in Central Hong Kong and the "corkscrew" mall in the Kowloon neighborhood. Investors have dumped Hong Kong property stocks with such fury, Champion now trades at an 80% discount to its net asset value and yields 18%.

On Monday, I saw a presentation given by Peter Churchouse. Peter ended up in Hong Kong as Morgan Stanley's Asia man for a long time. He left Morgan Stanley to start an Asian real estate stock hedge fund. And he probably knows more about Asian property markets than anyone else in the world.

Peter showed how investors have dumped all Asian property markets this year...

Here's one slide he presented. It shows the fall in property stocks this year in some of the major Asian economies. (These declines are in local currencies. In dollar terms, many of these falls would look even worse. The Indian rupee, for example, is down 21% this year against the dollar.)



YTD Decline




Hong Kong

 HIS Property



 ASX Property Trust



Singapore Property Index



 H Share Property Stocks






 KL Property Index



 SET Property





Is it time to invest in Asian property? Peter Churchouse says it is.

One measure of valuation Peter likes to use is the price-to-book ratio. Peter says that when investors bought Asian property stocks below book value, historically, they have always made money over the next three years. After 12 months, the median gain is about 15%. After two years, it's 19%. And after three years, investors are up 42%.

Here's how Asian real estate looks now...


Current Price-to-Book Ratio

Hong Kong


Asia Ex-Japan








Take Singapore REITs, for example. They are paying 15% dividend yields... and many of them are backed by large investments from the Singapore government.

Good investing,


Market Notes


Another asset to add to your rebound list… an asset that goes by the name "submerging markets" these days.

The real name for today's rebound asset is "emerging markets." These are stocks in high-growth economies like India, Brazil, and China. When times are good, investors go wild for these stocks and drive them up hundreds of percent. Brazilian stocks, for instance, gained more than 1,000% from 2003 to mid-2008. But when times are bad, emerging markets get destroyed. Brazil is down 70% from its summer high.

Here's the thing about market rallies after a big decline: The assets that have been beaten down the most are the ones that rally the most. Our friend Jeff Clark likens this situation to a basketball pushed down to the bottom of a swimming pool. The farther it gets pushed down, the harder it comes back up.

Emerging markets are now trading for super-cheap levels… most go for less than 10 times earnings and around book value. Like infrastructure stocks, emerging markets have big potential when the stock market puts together a rally.

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