News

SHANGHAI -(Dow Jones)- Property prices in China were flat for the second consecutive month in August on a sequential basis but continued to increase from a year earlier, underscoring the challenge Beijing faces in trying to cool down the real-estate market following the tightening measures it announced earlier this year.

Analysts said they don't expect any significant declines on a sequential basis in coming months. Despite this, the government is unlikely to make any major changes to its policies on the property market for now, though it may tweak some of the tightening measures, they said.

Property prices in 70 of China's large and medium-sized cities were unchanged in August on a month-on-month basis, the National Bureau of Statistics said Friday. Prices were also unchanged in July, and fell just 0.1% in June from the previous month. The property price index in August rose 9.3% from a year earlier, down from July's 10.3% rise. It was the fourth straight month of slower growth since April's record 12.8% increase, the bureau said.

Analysts said Beijing needs to strengthen the measures it has taken since April to curb the speculation that has driven up property prices and could increase social discontent and economic risks.

"The government may announce more stringent tightening measures to keep prices stagnant in the coming months," said Johnson Hu, an analyst at UOB KayHian, adding that these measures could include further credit curbs for developers and more stringent mortgage requirements for third-home buyers.

The official figures are lower than some private-sector estimates. Citigroup said in a research note Wednesday that on a month-on-month basis, property prices in China rose 6%, while transaction volume rose 28%.

"The government data itself doesn't support policy change, but from what we're seeing, sales volume has gone up a lot, and the average prices of the sold property have grown," said Citigroup analyst Ken Peng, adding the tightening measures taken by China haven't addressed structural imbalances.

"The sicknesses of the property market are excess liquidity, low real interest rates and the lack of investment alternatives. These structural problems are causing constant worry of a bubble and unless they are resolved, everything else is just a band-aid," Peng said.

Local media reports early this month said that China will gather data on unoccupied residential property in its nationwide population census starting Nov. 1 and assess the situation in some cities

In terms of floor space, nationwide property sales fell 10.1% to 68.9 million square meters in August from the same month a year earlier, but were higher than July's 64.7 million square meters. The rebound came ahead of the traditionally peak month for property sales in September.

However, Andy Rothman, China strategist for CLSA Asia-Pacific Markets, said the government is more focused on the month-on-month figure, and prices have remained essentially flat for the past three months following April's 1.4% rise.

"This shows that the government measures have been working quite well," he said.

"It depends on what you think the government wants to achieve from its tightening measures in April, if it's price falls from current levels then there could be further tightening," Rothman said. "From our discusssions with government officials, they're satisfied with flat prices."

On Thursday, the Shanghai Securities News reported People's Bank of China adviser Xia Bin as saying the recent rebound in property transactions is just a short-term phenomenon.

Beijing is also being careful as it wants to avoid the possibility of a hard landing for the economy, analysts said.

On a month-on-month basis, prices were flat in Beijing and fell 0.1% in Shanghai, 0.3% in Guangzhou and 0.2% in Shenzhen, said the statistics bureau.

Investment in real-estate development, one of the main forms of private investment in China, rose 36.7% in the January-August period from a year earlier to CNY2.84 trillion, slowing from the 37.2% rise in the January-July period, the bureau said.

Copyright © 2010 Dow Jones Newswires

By Sonali Paul

MELBOURNE, Sept 10 (Reuters) - A manager of anaward-winning fund at Australia's biggest money manager,Colonial First State, is doubtful BHP Billiton can delivergrowth through takeovers, and is putting his money on rival RioTinto.

Renzo Casarotto, senior portfolio manager of Colonial'sGlobal Resources Fund, which has $4.2 billion in assets, alsois looking for a higher offer for Canada's Potash Corp than the$39 billion bid made by BHP.

"It really is concerning the market that BHP highlightedthe fact that they had the strongest balance sheet going intothe global financial crisis but haven't been able to use thatbalance sheet to enhance the position of shareholders,"Casarotto told Reuters in an interview.

"We're concerned that they're sort of struggling to executeproperly."

He referred to its failed bid for Rio Tinto two years agoand the difficulties it is having in winning approval for theiriron ore joint venture to illustrate his point.

Colonial First State is a unit of Commonwealth Bank ofAustralia. Its biggest holdings include BHP and Rio Tinto,mostly in their UK shares as they are cheaper than the twocompanies' Australian-listed shares. The fund manager is amongthe top 25 holders in BHP's UK shares and top 50 in itsAustralian shares.

As a Potash shareholder, Colonial thinks the world'sbiggest deal this year should get bigger, Casarotto said.

"Given the strategic positioning of Potash Corp, we thinkit's probably worth a little bit more than what BHP wasprepared to pay," he said.

The Global Resources Fund, lead managed by Joanne Warner,has outperformed the MSCI World Index since its launch in 1997,returning more than 13.7 percent a year on average against the2.4 percent return of the MSCI World Index, according toMorningstar, which has a "recommended" rating on it.

It was named the best resources fund in UK-based InvestmentWeek's fund manager of the year awards 2010.

VALUE IN MINING STOCKS

Casarotto said while BHP was strong operationally, Rio hada slightly cheaper valuation and better growth profile. He declined to comment on whether Colonial wants Rio toabandon its planned $116 billion iron ore joint venture withBHP.

"The market would certainly say that's a correctassessment," Casarotto said.

For the deal to go ahead, he said Rio should press BHP formore than the $5.8 billion it is slated to pay to equalise itsstake in the joint venture, but declined to estimate how muchmore BHP should pay.

Casarotto saw opportunities for cheap picks in the miningsector, with the market reflecting worries about a U.S.double-dip and growth slowing in China.

Spot commodities prices and freight rates point tocommodity prices improving later this year which should boostminers' shares, he said.

"So we're seeing value. It's a matter of seeing theseheadwinds abate a bit and then think these stocks will performquite strongly," Casarotto said.

The Sydney-based fund is chasing coking coal and coppercompanies with low-cost production, solid growth projects andclean balance sheets, as they would be well-positioned inmarkets where supplies are failing to keep up with demand.

Two of its top picks in those sectors are Chilean minerAntofagasta Minerals and U.S. coking coal producer WalterEnergy.

It is avoiding companies in aluminium and U.S. natural gas,where supply is expected to be in surplus for some time.

In the hot gold sector, amid takeover hype, the fund isswitching into stocks with cheaper valuations, focusing onsmall companies like San Gold and Romarco Minerals.

SOFT COMMODITIES FUND

Colonial started a soft commodities fund last November,which has A$22 million, managed by Skye Macpherson, looking toreap growth in companies that are poised to profit from rapidlygrowing global food demand.

"We still think there are significant opportunities forinvestment in global soft commodities equities going forward,"Macpherson told Reuters. The fund is targeting companies that are helping to boost foodproduction, like U.S. grains giant Archer-Daniels Midland andBrazilian group SLC Agricola, and those that can help improveproductivity, like Switzerland-based Sygenta.

"We tend to be underweight those companies that have thinmargins and are highly leveraged because they're quitevulnerable if the cycle turns against them," Macpherson said,pointing to beef and chicken producers like JBS in Brazil.

The soft commodities fund is up 7 percent since it launchedlast November, outperforming a 2.6 percent drop in Australia'sbenchmark S&P/ASX 200 index over the same period. ($1=1.082 Australian Dollar) (Editing by Muralikumar Anantharaman)