Morgan Stanley-Hong Kong Property July-24 Hong Kong Retail Sales Show More...-110127801

Investment Rating - The report assigns an "In-Line" industry view for the Hong Kong property sector [1]. Core Insights - July 2024 retail sales in Hong Kong declined by 12% year-over-year, which is worse than expected, leading to a revised forecast for 2024 retail sales to a decline of 9% from a previous estimate of 5% [1]. - The report highlights that stocks with retail exposure, such as Wharf REIC, Link REIT, and Hysan, have underperformed the Hang Seng Index by 20-24 percentage points year-to-date [1]. - The report favors residential developers over retail and office landlords, with a preference for Wharf REIC and Link REIT among retail landlords [1]. - The report notes that luxury retail sales dropped significantly, with a 25% year-over-year decline in July 2024, and a 15% drop year-to-date [1]. - Online retail sales grew by 1% year-over-year in July 2024, accounting for 7.8% of total retail sales [1]. Summary by Sections Retail Sales Performance - July 2024 total retail sales were HK$29.1 billion, marking a 12% year-over-year decline and the lowest dollar amount since the full border reopening [1]. - Major categories such as luxury goods, department stores, and clothing/footwear experienced significant declines, with luxury sales down 25% year-over-year [1]. Stock Recommendations - The report recommends Wharf REIC and Link REIT with an "Overweight" rating, while Hysan is rated "Equal-weight" due to slowing retail momentum and high office exposure [1]. - The report anticipates that potential upcoming US rate cuts could widen the dividend yield spread, positively impacting earnings per share (EPS) and dividends per share (DPS) for these stocks [1]. Visitor Trends - Chinese visitor arrivals increased to 78% of 2018 levels in August 2024, but local spending per capita remains weak, affecting overall retail performance [1].