What Bubble? Time to Invest in China Property Stocks, Says Analyst
Despite growing concerns of a bubble brewing in China's property market, one strategist maintains that's where the smart money should be.
"Property is probably the best sector to invest in right now," Erwin Sanft, Head of China Research at BNP Paribas Securities told CNBC. While he admits it's a contrarian view, he says real estate stocks are currently attractively priced and the sector will continue to benefit from China's booming consumption.
"Right now the property stocks we're recommending are down on 6 or 7 times P.E. (price-to-earnings ratio)," he said, adding that they are currently trading at record discounts to their net asset values.
Sanft's call is part of BNP Paribas' shift from China's large-cap defensive stocks, which it'd recommended last year, to pro-growth mid-cap plays in China, dominated by companies in the consumer, property, industrials and materials sectors.
"We're now going back to a more pro-growth emphasis." he said. "I think a lot of mid-cap growth stocks in the China market have de-rated and now's a good time to start looking back at where we can find earnings growth in the market."
Sanft expects mid caps to benefit as China's credit growth sees renewed momentum in the second half of the year.
"We're really through most of the slowdown of credit growth," he said. "So I would expect second half of the year we would be talking about some reacceleration, not very big, but certainly some reacceleration of credit growth in China."
Mid-caps in Hong Kong, in particular, are looking attractive from a price point, Sanft added.
"In the Hong Kong market the premium has come down... mid caps were at a 64 percent premium, that's down to 33 percent now," he said. According to BNP's estimates, earnings per share growth for mid-caps this year is forecast at 17 percent and 20 percent next year, compared to 12 percent and 14 percent respectively for large-caps.
The stocks in Sanft's buy list include Agile Property, Country Garden, Shimao Property and Shui On Land.
Erwin Sanft does not have any personal holdings in the stocks mentioned.