Listed Real Estate Asia, KT Capital Group

Jacob Cheng

Listed Real Estate Asia

KT Capital Group

Principal investments and advisory firm that focuses on connecting the CIS countries with East Asia.

Principal investments and advisory firm

Equity Bottom-Up

Wharf Real Estate Investment Company / Equity Bottom-Up

Wharf Real Estate Investment Company (1997 HK)

<ul>
<li>We think Wharf REIC, which owns luxury malls in Hong Kong, is undergoing a structural de-rating, on the back of macro headwinds, currency impact and company fundamentals</li>
<li>Southbound consumption into Hong Kong has weakened deeply, catalyzed by a punitive USD-pegged Hong Kong Dollar (HKD) and a collapsing Japanese Yen (JPY)</li>
<li>In latest interim results, Wharf REIC reported HK$5.1 billion revaluation deficit and a HK$2.4 billion net loss, representing negative rental reversions crystallizing into lower asset values.</li>
</ul>


We think Wharf REIC, which owns luxury malls in Hong Kong, is undergoing a structural de-rating, on the back of macro headwinds, currency impact and company fundamentals
Southbound consumption into Hong Kong has weakened deeply, catalyzed by a punitive USD-pegged Hong Kong Dollar (HKD) and a collapsing Japanese Yen (JPY)
In latest interim results, Wharf REIC reported HK$5.1 billion revaluation deficit and a HK$2.4 billion net loss, representing negative rental reversions crystallizing into lower asset values.


Short Wharf REIC: Structural De-Rating and Weakened Luxury Consumption

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Cross Asset Strategy

<ul>
<li>The Hong Kong market has advanced this month, while Japan, Korea, and Taiwan have declined in a mean-reversion move sparked by apparent short covering.</li>
<li>Rising turnover, a supportive tech narrative from Beijing and increased southbound flows indicate that the rally may have legs.  Consumer discretionary and energy sectors have been the top sector performers.</li>
<li>There is evidence that some short covering catalyzed the rally during the normal June/July tight liquidity period, with low volatility and quality factors outperforming in the broader market.</li>
</ul>


The Hong Kong market has advanced this month, while Japan, Korea, and Taiwan have declined in a mean-reversion move sparked by apparent short covering.
Rising turnover, a supportive tech narrative from Beijing and increased southbound flows indicate that the rally may have legs.  Consumer discretionary and energy sectors have been the top sector performers.
There is evidence that some short covering catalyzed the rally during the normal June/July tight liquidity period, with low volatility and quality factors outperforming in the broader market.


Hong Kong Market Catches a Bid: What's Going On? (July 20)

Thematic (Sector/Industry)

<ul>
<li>Surging United States inflation and elevated oil prices have halted anticipated rate cuts, keeping Hong Kong interbank rates elevated and driving structural cap rate expansion.</li>
<li>Despite isolated rental growth in premium commercial spaces, mathematical yield expansion violently overpowers income gains, triggering severe portfolio devaluation across the Asian equity space.</li>
<li>Major commercial RE operators, including Wharf REIC and Link REIT, are reporting multi-billion dollar revaluation deficits as updated appraisal metrics force a painful recalibration of asset book values.</li>
</ul>


Surging United States inflation and elevated oil prices have halted anticipated rate cuts, keeping Hong Kong interbank rates elevated and driving structural cap rate expansion.
Despite isolated rental growth in premium commercial spaces, mathematical yield expansion violently overpowers income gains, triggering severe portfolio devaluation across the Asian equity space.
Major commercial RE operators, including Wharf REIC and Link REIT, are reporting multi-billion dollar revaluation deficits as updated appraisal metrics force a painful recalibration of asset book values.


Cap Rate Expansion: Hong Kong Real Estate Valuation Are Collapsing

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>In the last 4 weeks, the HSI constituents with the highest yields have gained 3-4%, while the lowest-yielding ones have lost an average of 4%. </li>
<li>The top 15 high-yield constituents will deliver an average yield of 6.2% for FY26. The number increased to 25 when we include those at over 5%.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a>, <a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a>, <a href="https://www.smartkarma.com/entities/haidilao-international-holding" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao International Holding (6862 HK)</a>, <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a>, and <a href="https://www.smartkarma.com/entities/power-assets-holdings-ltd" target="_blank" data-smartkarma-citation="entities:788:1" rel="noopener">Power Assets Holdings (6 HK)</a> also have net cash. </li>
</ul>


In the last 4 weeks, the HSI constituents with the highest yields have gained 3-4%, while the lowest-yielding ones have lost an average of 4%. 
The top 15 high-yield constituents will deliver an average yield of 6.2% for FY26. The number increased to 25 when we include those at over 5%.

China Mobile (941 HK), CNOOC Ltd (883 HK), Haidilao International Holding (6862 HK), China Unicom Hong Kong (762 HK), and Power Assets Holdings (6 HK) also have net cash. 


Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>We remain near-term bullish since our 4/22/25 Compass, and our intermediate-term outlook remains bullish as well (as of our 5/14/25 Compass), with Int’l Compass reports all echoing this sentiment.</li>
<li>We will maintain our bullish intermediate-term view as long as market dynamics remain healthy and the SPX and ACWI-US are above 6028-6059 (up from 5700-5785) and $119-$121.</li>
<li>$128, $125-$126, and $123-$123.50 are short-term supports to watch on ACWI-US; we will maintain our near-term bullish outlook as long as $123 support holds.</li>
</ul>


We remain near-term bullish since our 4/22/25 Compass, and our intermediate-term outlook remains bullish as well (as of our 5/14/25 Compass), with Int’l Compass reports all echoing this sentiment.
We will maintain our bullish intermediate-term view as long as market dynamics remain healthy and the SPX and ACWI-US are above 6028-6059 (up from 5700-5785) and $119-$121.
$128, $125-$126, and $123-$123.50 are short-term supports to watch on ACWI-US; we will maintain our near-term bullish outlook as long as $123 support holds.


Continue Adding Exposure to China; Short-Term Supports to for This ACWI-US Pullback

Hong Kong

Wharf Real Estate Investment Company Limited is an investment holding company that owns and operates a portfolio of premier retail, office, and hotel properties. Its key assets include Harbour City and Times Square in Hong Kong, along with commercial properties in Singapore. The company was established in 2017 and is headquartered in Hong Kong.

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Wharf Real Estate Investment Company (1997 HK)

Short Wharf REIC: Structural De-Rating and Weakened Luxury Consumption

We think Wharf REIC, owning luxury malls in Hong Kong, is undergoing a structural de-rating, on the back of macro headwinds, currency impact as...

Jacob Cheng

Hong Kong Market Catches a Bid: What's Going On? (July 20)

The Hong Kong market has advanced this month, while Japan, Korea, and Taiwan have declined in a mean-reversion move sparked by apparent short...

David Mudd

Cap Rate Expansion: Hong Kong Real Estate Valuation Are Collapsing

As seen by latest results from Link REIT and Wharf REIC, HK commercial property is showing a trend of cap rate expansion, which led to significant...

Jacob Cheng

HK Strategy: Focusing Back on Yields

High-yield HSI constituents have outperformed low-yield ones in the last 4 weeks, reversing the pattern this year. The top 15 will deliver a 6.2%...

Osbert Tang, CFA

Continue Adding Exposure to China; Short-Term Supports to for This ACWI-US Pullback

Continue Adding Exposure to China; $ACWI Short-Term Supports for this pullback: $128, $125-$126, and $123-$123.50. Pullbacks = buy opportunities,...

Vermilion Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Short Wharf REIC: Structural De-Rating and Weakened Luxury Consumption

We think Wharf REIC, owning luxury malls in Hong Kong, is undergoing a structural de-rating, on the back of macro headwinds, currency impact as...

Jacob Cheng

Hong Kong Market Catches a Bid: What's Going On? (July 20)

The Hong Kong market has advanced this month, while Japan, Korea, and Taiwan have declined in a mean-reversion move sparked by apparent short...

David Mudd

Cap Rate Expansion: Hong Kong Real Estate Valuation Are Collapsing

As seen by latest results from Link REIT and Wharf REIC, HK commercial property is showing a trend of cap rate expansion, which led to significant...

Jacob Cheng

HK Strategy: Focusing Back on Yields

​High-yield HSI constituents have outperformed low-yield ones in the last 4 weeks, reversing the pattern this year. The top 15 will deliver a 6.2%...

Osbert Tang, CFA

Continue Adding Exposure to China; Short-Term Supports to for This ACWI-US Pullback

Continue Adding Exposure to China; $ACWI Short-Term Supports for this pullback: $128, $125-$126, and $123-$123.50. Pullbacks = buy opportunities,...

Vermilion Research

High-yield HSI constituents have outperformed low-yield ones in the last 4 weeks, reversing the pattern this year. The top 15 will deliver a 6.2%...