For decades, the shares of property companies in Hong Kong have tracked property prices.

It’s a simple idea… When real estate prices go up, shares of property companies go up.

In Hong Kong, the gains can be just silly. And it’s an easy trade for Americans to make. The thing is, we haven’t seen this classic relationship since the start of 2011.

[ad#Google Adsense 336×280-IA]Over the past two years, we’ve seen what my friend Peter Churchouse calls “a significant disconnect” between Hong Kong property stocks and property prices.

Since the start of 2011, shares of property companies have fallen, while property prices in Hong Kong have gone up.

This “disconnect” has created a great opportunity…

Peter is one of the true pioneers of emerging-markets investing.

For the last 30-plus years, he’s been based in Hong Kong, pursuing investment opportunities in Asia.

And right now, he sees a tremendous opportunity in the “significant disconnect” between property prices and the share prices of property companies…

Peter writes extensively about this idea in the latest issue of his newsletter, the Asia Hard Assets Report (www.AsiaHardAssets.com).

I believe the historical relationship will return. In the meantime, shares of property companies in Hong Kong are a good buy today…

As Peter explains, the value is great: “Shares are not overly stretched, with forward [price-to-earnings ratios] averaging around 11 times, and shares trading at around 30%-45% discounts to NAV (net asset value).”

He also points out these businesses are very safe…

Hong Kong’s major property companies collectively have probably the most-lowly geared balance sheets of any major developed market anywhere. Most major property development companies carry net debt equity ratios of less than 25%, with many at around 15% or less.

Financial risk is very low. Hong Kong’s developer balance sheets would be the envy of most property markets around the world.

So what do you buy to take advantage of it?

Peter says investors should stick with the well-established “developer” names, “the hard core companies that dominate Hong Kong development scene.” These stocks are the safest bets in an environment characterized by “significant levels of uncertainty.”

Many of the big-name developers are all holdings in the Guggenheim China Real Estate Fund (TAO).

I recommended shares of TAO to my True Wealth subscribers in September. Shares are already up nearly 20%. This rally tells me that Peter’s “great disconnect” is starting to go away.

In addition to Hong Kong, TAO holds shares of Hong-Kong-traded companies that specialize in Chinese real estate.

In his letter, Peter says China real estate plays are CHEAP, too: “[China real estate] shares are typically trading at deep discounts to underlying net asset values, broadly in a range of 30% to 70% discounts.”

These stocks are also HATED: “China has been very much out of favor with international investors in the past year or so, and China stock indices have been major underperformers.”

And now – judging by the 20% move in TAO since September – we’re finally starting to see an UPTREND.

We have our True Wealth “Holy Grail” for investing – TAO is 1) cheap, 2) hated, and now 3) in an uptrend.

This is your lowest-risk, highest-reward time to buy.

I expect that this property bubble will go higher than our property bubble went in the States.

Yes, True Wealth subscribers are already up about 20% in TAO in just a few months. But I believe this is just the beginning…

Good investing,

Steve

[ad#stansberry-ps]

Source: DailyWealth