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<Research>UBS: If US Hikes Rates This Yr, HK Property Mkt and Real Estate Stocks Face Downside Risk; Soaring Oil Prices Hit HK Retail
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UBS released a report on the repercussions of the Mideast conflict on the Mainland Chinese and Hong Kong property markets. As per the Federal Funds futures market, oil price spike prompted the market to price in a 45% probability of a rate hike this year, whereas a month ago, the market expected two rate cuts this year. Although the continued influx of population was forecast to underpin rental growth in Hong Kong, if the Fed raises interest rates, Hong Kong's residential property prices and real estate stocks will face downside risks, akin to the rate hike cycle from April 2022 to August 2023. On the other hand, owing to the slackened economic growth in mainland and the reduced likelihood of policy rate cuts, the mainland residential property market may face mildly negative impacts. In the retail sector, UBS indicated that soaring oil prices imply higher airfares, leading to fewer tourists and cost inflation, adversely impacting Hong Kong's retail properties, but providing cushion to mainland retail properties. Mainland malls rely less on tourist consumption, and mainland tourists may travel less abroad, similar to the situation during the COVID-19 period when mainland luxury malls outperformed those in Hong Kong. The higher cost inflation in Hong Kong compared to the mainland may also cause more consumption flowing to the mainland, negatively affecting retail entities like LINK REIT (00823.HK) and DFI Retail. Moderate inflation in the mainland also helps boost the total retail sales of shopping centers. In the scenario of prolonged conflict, the aforementioned negative factors will impact Hong Kong real estate stocks such as SHK PPT (00016.HK), HENDERSON LAND (00012.HK), MTR CORPORATION (00066.HK), and WHARF REIC (01997.HK), and as US Treasury yields rise, investors may demand higher dividend yields. CK ASSET (01113.HK) and SINO LAND (00083.HK) have higher dividend certainty. CHINA RES MIXC (01209.HK), HANG LUNG PPT (00101.HK), and SWIREPROPERTIES (01972.HK) are expected to ride on the potential luxury sales repatriation and reflation in Mainland China. AASTOCKS Financial News Website: www.aastocks.com |
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