CapitaLand Shares Slide To 2-Year Low

Source : The Business Times, August 26, 2008

Funds selling down regional property stocks as outlook gets more downbeat

The stock of the region's largest listed property group is taking a sharp knock as funds bail out of regional property stocks amid an increasing bearish outlook for the sector.

CapitaLand's shares fell 13 cents or 2.9 per cent to $4.32 yesterday - its lowest level in two years. But what baffled many market watchers was the heavy selling volumes. Some 21 million stocks changed hands.

'It is not just the selling that is worrying, but the heavy volumes on the way down,' observed a seasoned dealer. 'This is heavy institutional selling, and a very bearish signal.'

Meanwhile, CapitaCommercial Trust sank 10 cents or 5.4 per cent to $1.75 on some 7.3 million units amid concerns that the office rental market in Singapore was poised for a 30 per cent drop over the next three years as supply significantly outstrips demand.

The current selldowns follow downgrades by some global houses in recent weeks.

About 10 days ago, Morgan Stanley cut CapitaLand's 12-month price target to $4.16, from $5.94, citing weak earnings for the next two years.

Morgan Stanley noted that CapitaLand's wider diversification strategy and Asian regional footprint had failed to provide some share price support on the downside. CapitaLand has significant interests in Singapore, China, Vietnam and other regional countries. The investment house's analysts Melissa Bon and Brian Wee said there were no positive catalysts, and cautioned of a possible absence of new launches for up to 18 months if the economic slowdown dragged on.

'We are inclined to be less optimistic than CapitaLand's management who expect the Singapore residential market to remain flat this year,' the report said.

Meanwhile, UBS said in a report on Friday that it expects office rentals and capital values to drop as much as 34 per cent in the next four years.

But given that it is Asia's largest listed property company, CapitaLand has a relatively large pool of global portfolio investors. And this makes it more vulnerable to massive selldowns by funds which are scrambling to cash-up in the face of a global liquidity crunch.

The stock's liquidity - which attracted institutional investors and helped fuel its bull run last year - has also turned out to be a double edged sword, contributing to its savage beating now.

The selldowns came despite the fact that CapitaLand will realise a total portfolio gain of $313 million by injecting four of its Raffles City assets in China into its 50 per cent owned Raffles City China Fund. This comprises a $183 million net gain from the dilution of CapitaLand's interest in the four Raffles City assets, and a $130 million fair value gain for Raffles City Shanghai.