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Could Slowing China Growth Hit China-Related REITs?

The Chinese economy, the second largest in the world, grew at an annualised rate of 7.3% in the third quarter. This slowing economic growth in China has prompted worries about the risks facing the country.

However, it is important to remember, that even at this level of growth, whilst slower than previous years, is still adequate to make it the fastest growing economy in the world. But hould we as value investors be worried or are the risks, as President Xi Jinping said, “not scary”?

Many economists are probably not too concerned. But macroeconomics is never high on a value investor’s agenda, anyway. Instead, value investors are only concerned about the fundamentals of companies.

Singapore is home to eight REITs with interest in China. In terms of the price-to-earnings ratio, none looks attractive. The lowest earnings multiple comes from Mapletree Logistics Trust (SGX: M44U), which at 23.1 is quite some way above the market average of 14.

Arguably a better measure of value could be the price-to-book ratio. This ratio could give value investors some measure of the margin of safety. Interestingly, all eight companies look much better on this count, with the highest price-to-book ratio being 1.2 for Cache Logistics Trust (SGX: K2LU).

Three REITs trade below their book values. These are Mapletree Greater China Commercial Trust (SGX: RW0U) and Starhill Global REIT (SGX: P40U) that are priced at a 10% discount. OUE Commercial REIT (SGX: TS0U) trades at a 20% discount.

Another metric value investors quite like is the dividend yield. REITs traditionally pay out healthy yields and the three REITs above are no exception, with each paying market-beating yields of over 6%.

With cash on all three companies’ balance sheets, they could all appear to be value shares, provided you are prepared to overlook their inflated price to earnings ratios.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.