Hong Kong Stock Market Review: Continue to Hold Together
Hong Kong Stock Market Review: Continued clustering, no reduction in dividend tax exemption, funds shifting to high-yield and dividend stocks, overseas elections and rate cuts increasing market uncertainty, favoring high dividend and mid-cap estimates. More substantial stimulus policies are needed domestically. One of the gifts of the return is allowing non-Chinese Hong Kong residents to apply for Home Return Permits, putting pressure on the Hong Kong retail industry. After the opening of the Shenzhen-Zhongshan Link, there is an increase in mainland consumer spending in Hong Kong. LINK REIT has the best defensive capabilities in Hong Kong REITs, but the decline in total retail sales is related to the popularity of shopping in Shenzhen supermarkets. Hong Kong malls need to provide non-shopping experiences to enhance attractiveness. Local telecom stocks may outperform REITs, such as HKT-SS, which is expected to rise to over 9% dividend yield
The reduction of dividend tax in the Hong Kong stock market has not yet appeared, but it does not affect the performance of high-dividend stocks. Some funds that cannot speculate on bonds have turned to continue speculating on dividends, which is nothing more than the stock market lacking opportunities.
On the other hand, with only over 4 months left until the overseas general election, coupled with the significant variables of interest rate cuts, the stock market continues to face increasing uncertainty and pressure, further benefiting high dividend stocks and those with medium to high valuations. To address this issue, it seems that more substantial stimulus policies need to emerge domestically.
As for the return of Hong Kong to China, one of the gifts provided by the mainland is allowing non-Chinese Hong Kong residents to apply for a Home Return Permit, valid for 5 years. However, this will only bring greater pressure to the retail industry in Hong Kong.
During the 71 holiday, the average daily number of Hong Kong residents traveling north reached 470,000, a year-on-year increase of 95%, which is 9% higher than the Dragon Boat Festival. With the opening of the Shenzhen-Zhongshan Link, the trend of northbound consumption will only become stronger.
Among Hong Kong REITs, Link REIT has the best defensive strength, mainly because over 90% of its Hong Kong property rentals are based on basic rent, not linked to sales, so the pressure is on the tenants.
However, looking at the types of tenants, supermarkets and food performed the worst last year, with a 5.1% year-on-year decline in retail sales per square foot, largely due to the increasing popularity of shopping in Shenzhen supermarkets.
Currently, Sam's Club in mainland China has announced the official launch of direct mail services to Hong Kong in June. As one of the most popular shopping destinations for Hong Kong residents, this will only further accelerate the loss of local consumption, and the pressure on tenants under Link REIT may eventually be transmitted to rental prices.
Faced with the loss of consumer spending power, Hong Kong's shopping malls can only provide more non-shopping experiences to increase attractiveness, which will likely lead to a decline in rental prices.
Therefore, if the goal is to earn income, local telecommunications stocks may be better than REITs. For example, HKT-SS, in recent years, has been burdened by a significant increase in financial expenses due to the high-interest rate environment. However, it recently sold a portion of its unprofitable network business for HKD 6.8 billion. If the company uses half of it to repay debt, dividends are expected to rise to over 9%, and there may be potential future asset spin-offs to repay debt