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China property shares cut to ‘underweight’

BNP slashes 2008 earnings growth for industry to 31%

(HONG KONG) Investors should cut their holdings in Chinese property because of a slowdown in housing starts and home prices that will crimp earnings growth, BNP Paribas said.

The bank downgraded China real estate shares to ‘underweight’ from ‘overweight’, and slashed the 2008 earnings growth forecast for the industry to 31 per cent from 47 per cent, Hong Kong-based BNP analyst Andy So wrote in a research report published today.

‘Housing starts, bank loans and prices all showed signs of slowing down,’ Mr So said in his report. He named Hong Kong-listed Shimao Property Ltd as his top pick in the sector.

Home prices in some of China’s biggest cities including Shanghai and Shenzhen fell in the first two months of 2008 as government efforts to curb the soaring property market started to bite. The government sought to restrain the industry after home prices in 70 major cities surged 10.5 per cent in November and December from a year earlier, the most since the index began in July 2005.

Mr So reduced his price estimates for companies including Beijing Capital Land Ltd, China Overseas Land & Investment Ltd and Guangzhou R&F Properties Co.

Some smaller developers may struggle to maintain profit growth and be forced out of business as banks continue to tighten lending, Standard & Poor’s said in a Feb 28 report.

Source: Bloomberg (Business Times 4 Mar 08)

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