A Look at the APAC Real Estate Sector
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. It's going to be a holiday-shortened week in the Asia-Pacific. Many jurisdictions will be celebrating the Lunar New Year holiday. And coming up, we'll be talking markets with Michael Dyer of M&G Investments in Hong Kong. But we begin in the real estate market. I think it's fair to say that Hong Kong's commercial real estate sector has been going through one of its worst slumps in history. And some folks are saying there is simply no end in sight.

Joining us now for a closer look is Adriel Chan. He is chair of Hung Long Properties, joining us from our studios in Hong Kong. Adriel, thanks for making time to chat with us. When I think of markets that are in distress, I immediately think of the move to revalue assets. How has that been happening for you?

Thanks, Doug. Revaluations, I mean, they have to happen when markets change. I mean, these are unfortunately just the accounting rules. That being said, when you revalue, you can do it more conservatively or you can do it more aggressively. And so I think that the approach that we've taken is always to be more conservative. That being said, the cause for the big dip in our underlying profit is primarily those revaluations.

And so we have to do them. And unfortunately, that's where we are today. So you had that 25% drop in annual profit, right? That's right. When you look at the various sectors that you're involved in, whether it's shopping malls or office buildings, how is the weakness distributed?

So offices have been pretty weak, both in Hong Kong and mainland China. Residential, definitely super soft in the mainland, a little bit less soft here in Hong Kong. We did manage to sell through some of our apartments here in Hong Kong. And retail is...

It feels like it's bottoming out here in Hong Kong. If you strip out some of these one-offs, adjusted leases that we'd signed during the year, we're actually only down 3%, even though if you look at the numbers, it shows 9%. But in Hong Kong, like for like is only down 3%. So we're feeling actually like we've found the bottom. In mainland China,

Retail is down about 4%, so a little bit more. But that being said, if you listen to all the talk around China retail, about consumption, about sentiment, you'd think that it would be down a lot more. But we're actually only down four. So I'd say that it's a solid set of results.

but definitely looking for a little bit more growth this year. So in order to become more competitive in this environment, are you challenged with maybe having to spend some capital to renovate to be a little bit more competitive? Absolutely. I mean, you hit the nail on the head. When there's a downturn, one of the best things you can do is invest in yourself. So that's something that we've been doing. We have upgrades in some of our key marketplaces.

So is there cash on hand or do you find yourself going to either banks or going to the market to get financing?

Well, we are net debt right now. So we're at about 33, 34% geared. So unfortunately, we don't have as much cash on hand as we'd like or as we did several years ago. That being said, you know, we just signed a five-year, $10 billion Hong Kong dollar syndicated loan here from the Hong Kong, mainland China and Singapore banks. And that syndication was, I think, a strong vote of confidence for

for our finances, for our balance sheet, and indeed for our P&L. So, you know, we do have to go out and raise money for some of this. That being said, I think it's been relatively easier for us than the broader market. I'm wondering whether or not you feel the need to expand into other types of commercial real estate. We've talked about malls, we've talked about office, maybe a little bit of residential in there as well.

But the build-out that we are seeing right now globally in terms of artificial intelligence is on the server farm side. Are you tempted at all to get into the service space?

I have to be honest, I did look into that. You know, we had a lot of people approaching us a couple of months and years ago, looking at the opportunities to build out AI data centers or even traditional data centers. But I think that our core competency really is on that retail, which is high touch retail.

high human interaction. And I think that what we've decided strategically is to stick to the knitting and do what we know best. So we've talked a lot about trade tensions between the US and China. And I'm wondering, I know it's not your bailiwick necessarily, but maybe you can give me a sense of what's happening in warehousing and logistics.

So in mainland China, warehousing logistics is actually, in a way, great business because of the strength of that online sales market. There's just so much being done online. What we're seeing shift to offline is really the services and the experiential services.

segment of retail. So logistics, I think, will continue to do well. That being said, I have to say it feels like we're probably getting close to equilibrium, at least in the mainland China market. Unless there's big shifts in

demographics or in geography of where people live and choose to live, then I don't think that there is really good reason to see that expand. Is there something that you could see the government doing to help your business? Is there something that you would like to see?

So the word on everybody's lips these days is stimulus, and that's specifically consumption stimulus. So if they were to do that, if the Chinese government were to offer either vouchers or rebates or something along those lines, I think malls and retailers would be the first to benefit. That is something that everybody's watching very closely. They've done it for mobile phones, for trade-ins already, and we're looking to see if anything else comes this way.

Obviously, interest rates make a difference for investment, but the key word is really on consumer spending. So you mentioned a moment ago when you're in a downturn, it's a perfect opportunity to invest in yourself. We touched on renovation. I'm wondering about new construction. Where are you there?

So new construction is usually heavy, heavy capex, buying land and building it from scratch. I think it's safe to say that we're being extremely conservative on that front. That being said, there's other ways to invest in real estate rather than buying greenfield land and building new buildings. And we have to be creative and flexible in a market like today's, especially when it comes to capex development.

deployment. So we're looking at all the options that are in the market. It is really a buyer's market right now in the mainland. So a lot of interesting stuff has come up. That being said, you know, we haven't bitten quite just yet and we'll continue to keep an eye on that. Adriel, we'll leave it there. Thank you so much for joining us. Interesting conversation with Adriel Chan. He is chair of Hong Long Properties, joining us from our studios in Hong Kong here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. It is expected to be a relatively quiet week in Asia. Much of the region will be on holiday celebrating the Lunar New Year, and that would include China, Hong Kong, and South Korea. It's the year of the snake.

and it symbolizes wisdom, secrecy, and transformation. Things begin on the 29th. Joining us now for a look at market action in the APAC is Michael Dyer. He is investment director of equities and multi-asset at M&G Investments. Michael, joining from our studios in Hong Kong. Thanks for making time to chat with us. When I think of the Lunar New Year festivities, I think about consumers. What are your expectations for consumer spending, broadly speaking, across the region?

We see the year of the snake being an important one for China in terms more of the policy rather than the consumer. It's been weak, but what we're really looking to for the rest of the year or going into the new year is how policy is going to affect the market. And that's really been sort of priced out by valuations today. When you talk about policy, are you speaking about the possibility of tariffs from the U.S. on Chinese goods? Are you talking about policy on the mainland? No.

We're talking about policy on the mainland there. We don't have a better crystal ball than anyone else for understanding what's going to happen there. But we do see that the markets have largely waned from where they were in, say, September last year and priced out a lot of any action by the PBOC or Ministry of Finance in terms of supporting the market. So, as a value-led investor in the region, we see potential for upside surprise there.

Last week, Beijing directed some of the long-term investors in China, that would include some of the big insurance companies, to increase their exposure to Chinese equities. Maybe it's a way to stabilize the market. Do you think it's something that's going to have durability?

Look, we see the Chinese authorities and the stock market being increasingly aligned from where we're at today. So, from the corporate level through to the government, there's a need to really drive returns for shareholders and make it more of an attractive investment opportunity. The government needs the dividends from the companies. They need to see

growth in the economy from there. We need to see a groundswell of support for that. So we wouldn't bet on particular measures happening for the government to support that. We do see it as part of a broader package that is at these levels of prices, you know, an attractive entry point. What about the threat of tariffs from the U.S.? Even if it's 10% above and beyond what China is already dealing with from the U.S., does this have the potential to do much harm?

We think that's a stock level discussion. I mean, the noise around tariffs and Trump is going to be very pronounced over the next month for sure, even through the rest of the year. And the way dealing with it is,

modeling it really is to have some kind of probability versus some kind of amount for that tariff. And both of those numbers are very unknown, right? So, there's a 75% of a 20% tariff. The market doesn't really know yet. So, we're going to be waiting and seeing, looking at what it means for individual company earnings and then taking our cue from there.

So if we take Trump at his word, he's dialing back on a lot of the green initiatives that were put in place under the Biden administration. To what extent is that a negative for some of the big manufacturers that are involved in those industries, be it solar, be it wind on the mainland? Again, I mean, I think what Trump's doing on the green agenda is very telegraphed from what he promised coming into office. We don't think it changes too much in terms of what's happening within China. These are

effectively market leaders in those industries. They've invested heavily in building that capability, in building that IP, and we still see them as attractive alignment with what China wants to achieve in the next 10 to 20 years. Thematically, what interests you right now in terms of putting money to work in Chinese firms?

In China, really, it continues to be a bottom-up story. We're trying to look for areas where we think the noise has really obscured the sentiment around things. So the base level what we're looking for is companies which are increasingly focused on their shareholders.

We've seen, you know, careers moving through that. And China's doing it almost by stealth in the sense that it's not necessarily talked about as a broad initiative, but we are starting to see companies deliver more in terms of return there. It makes us find some interesting areas in terms of...

We like stocks across the board in terms of industrials. There's a couple of areas there that we like. But generally, it's on a stock-by-stock basis. You mentioned Japan there very briefly. Let's talk a little bit about what's going on. We got that 25 basis point hike in the policy rate last week. We don't really have a lot in terms of guidance in terms of where interest rates are going from here. What would your expectations be about the next move on the part of the BOJ?

We think that they're going to be very telegraphed actually in what they're doing. We see room for another hike before the end of the year. I think that's probably what the market consensus is. We wouldn't disagree with that. Our general view on Japan from a top-down perspective is it's going to remain noisy from a macro point of view. We've got political

level of political instability and infighting there. We've got concerns around a weak yen again, obviously what the BOJ is doing. All those will attract headlines. But the real story is this continued self-help and focus on shareholder returns from companies, which becomes a little bit tiring to investors because they hear it again and again and again. But it's the most pervasive driving force in Japan right now. Valuations are reasonable, but really what we can see for the next five years is earnings growth delivered

by unwinding of cross-shareholdings, of increased M&A activity, of all these signs which is corporate Japan sort of coming back to life. And as we go into the spring wage negotiations there, I think we will see sort of confirmation that inflation is sort of a sustainable level and reflation in the economy is progressing.

So when I'm listening to that, I'm thinking some of the big industrial conglomerates, that's where you want to be in Japan. Is that right? We try not to make big macro bets from it. It's more at the individual company level again. But we are seeing attractive opportunities across the consumer, across industrials, across real estate, across a number of different areas. It really comes down to what the boardroom are doing and how they're engaging with their shareholders.

So we were talking about BOJ policy a moment ago. What about the Japanese banks? Is this a place that you want to have exposure to?

They've done very well. We had a good level of exposure from them 2023 into the beginning of last year. We've dialed back and then we've increased again later last year. So, in some of the top names, we do like that. Again, it's not just about what's happening with their net interest margin. It's not just happening with what's happening with rates. It's also happening with what they're delivering to shareholders and reducing some of their cross-shareholdings, focusing on their core businesses. So, yeah, banks are attractive from here.

Before I let you go, to get your perspective on South Korea, we've seen a great deal of political turmoil recently. Is this a market that you must have exposure to, especially if you remain focused on high technology, high bandwidth memory, names like SK, Hynix, Samsung?

Yeah, I think it's attractive from a valuation perspective. Back in August when Japan sold off heavily, Korea did sort of in sympathy as well. It hasn't really rebounded in the same way that Japan did and we've also had concerns around

cyclical sort of focus of it given tariffs, we've got concerns around the politics. Again, similar to the Japan story, we think that that masks some of the value there. It's behind in the sort of value up story where Japan is. That's taken many years to get there. But it's starting to show intent that it wants to follow that path. And to the extent that we can find management teams who really buy into that, not just superficially, but are increasingly

focus on that for their shareholders, then we are attracted there. Yes. Michael, we'll leave it there. Thank you so much for being with us. Michael Dyer, he is the investment director for equities and multi-asset at M&G Investments, joining from Hong Kong here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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