New World Development, Kerry best positioned if and when cooling measures are relaxed

Among historically sensitive property stocks.

It has been noted that although falling home prices are negative for property stocks in the long run, in the medium term, a scenario is seen where bad news for the physical market may be good news for property stocks.

According to a research note from Barclays, as the government has always maintained that demand-side cooling measures are counter-cyclical in nature, it would follow that a confirmation of this downtrend could lead to some measures being relaxed.

The report also noted that after applying its valuation and fundamental overlay, Barclays believes NWD (OW) and Kerry (OW) are best positioned if and when cooling measures are relaxed.

Here's more from Barclays:

Midland, Sino, NWD and Kerry most sensitive to policy changes. Among the individual stocks, Midland, Sino, NWD and Kerry appear to have been the most sensitive to previous demand-side measures across both the T+1 to T+365 day timeframes.

Fundamentally, given our concerns about poor affordability, rising supply and the risk of higher interest rates, we are negative on physical home prices. Looking ahead, we also expect to see more incidences of the CCL home price index showing sequential declines.

However, at the property stock level, we continue to see scope for a tactical positive view especially with current undemanding valuations. If our ideas on property cooling measures being dynamic and the reaction symmetry are correct, at some stage, bad news on the physical market may become good news for stocks as “policy risk” turns to “policy reward."

Among the four property stocks that have historically been the most sensitive to policy changes, after applying our valuation overlay and our fundamental view, our preference is for NWD and Kerry Properties.