Aberdeen’s Young: Chinese property to fall 30%

China’s property bubble is set to burst this year, triggering a 30% fall in values, Aberdeen’s Hugh Young said, echoing last week’s warning from Anthony Bolton the sector is overheating.

Young, manager of the £2.2bn Asia Pacific fund and £4.7bn offshore Asian Pacific Equity fund, said when the property sector collapses, stockpicking in the region will become more difficult.

“China will have its booms and busts, and it is probably due a bit of a bust somewhere – most people have been looking at property as being where that will come from.

“A lot has been built, but not all for the right purposes. In hindsight, we will see whether all the infrastructure China has built is of use.

“Therefore we are not too keen on piling into Chinese stocks. The country is growing by the minute but it is not without its problems. It has printed as much paper as the US and we worry about that, as well as the bubbliness in property and inflation coming through. We cannot find many companies we are comfortable with.”

Young said China has been trying to “prick the property bubble” for the past couple of years with a raft of measures, including increasing upfront payments.
He said: “Could the bubble burst later this year? Yes it could.

“Booms and busts are inevitable, particularly in a strong economy like that.

“So rather than a meltdown, if property falls 30%, it will have more of a wealth affect, so people feel a lot poorer. This will obviously dent things, but it will not be plunging the country into complete crisis.”

Last week, Fidelity veteran Bolton said China’s property sector faces major headwinds in the second half of 2011.

The manager of the £750m China Special Situations trust said the harsh measures taken by the Chinese authorities to curtail growth would impact the sector later this year.

“My view on the China property market is we have had a series of tightening measures, unprecedented in their toughness,” he said.

“The second half of this year will be difficult – I am quite happy I have minimal exposure to Chinese developers.”

Meanwhile, in the financials sector, both Young and Bolton favour Hong Kong-listed banks over those on the mainland.

Young is concerned mainland Chinese banks have grown their assets too quickly, while making too many bad loans.

His Asia Pacific fund has its largest weighting in financials, at 39.2%, a 5% overweight to the benchmark.

Holdings include Standard Chartered, HSBC and a number of Singaporean and Malaysian banks. Bolton’s trust had 25% in financials in total at the end of February, compared to the MSCI China benchmark of 37%, at the end of February.