Text/ATFX
Boosted by the growing expectation that the peripheral Federal Reserve may cut interest rates by 50 basis points in September, Hong Kong stocks, bank stocks and real estate stocks showed a very different trend. Hong Kong stocks fluctuated and fell on Monday. The financial and real estate sectors were called the worst performing and best sectors respectively.
Expecting the Federal Reserve to cut interest rates by 50 basis points in September, local real estate stocks in Hong Kong, which are sensitive to interest rates, are sought after. The real estate classification index rose more than 1% against the market yesterday, and most real estate stocks consolidated at a low level. Yesterday, Jiucang Land (01997) and New World (00017) rose 6.7% and 7.9% intraday, while Henderson (00012), SHKP (00016), Lingzhan (00823), Changshi (01113), Swire Properties (01972) and MTR (00066) rose 3.4% to 4.6% in the intraday period. Despite repeated performance in Hong Kong stocks today, the overall real estate index maintained a moderate upward trend.
According to the UBS Research Report, most Hong Kong real estate companies currently have dividend rates of 7%-10%, providing a certain level of buying opportunity. The market expects the Federal Reserve to cut interest rates this year. When the market is optimistic about interest rate cuts, companies with sustainable dividend rates and attractive valuations are expected to outperform the market.
Earlier, the HSBC report indicated that Hong Kong real estate stocks are expected to outperform the market in July, although they still face challenges in the first half of the year. I believe that due to the US Federal Reserve's interest rate cut in the second half of the year, I believe this has already begun to be reflected in stock prices. The target price for the covered real estate stocks was reduced by an average of 4.2%, and the profit forecast for 2024-2026 was lowered by 2-3.2%.
Although there are still economic headwinds and the recovery of the tourism industry falling short of expectations, some companies in the industry have begun to improve, mainly benefiting from the fact that they have begun to deleverage or increase sales. Continued normalization of the industry will help end the dividend cycle cuts per share and make the industry more attractive to investors.
Furthermore, the market is looking forward to the upcoming performance of real estate stocks. J.P. Morgan estimates that the industry's core earnings per share will drop by an average of 7%, mainly due to lower rental income, pressure on gross profit from development projects, and rising financing costs. As far as the industry as a whole is concerned, the bank remains cautious and will select individual shares. More potentially bad asset disposal may also drive the capitalization rate to expand, leading to further asset depreciation.
Even with support from expectations of interest rate cuts, the current boost is expected to be only short-term. As the market gradually measures and cuts in interest rates, the boost that can actually be brought is limited until the implementation of interest rate cuts in September, yet Hong Kong real estate stocks are still in a period of headwinds for the overall industry. The downward pressure on profit margins due to reduced rental income and reduced dividends paid by developers are still negative for stock prices. Look out for real estate companies with stable dividend payouts, such as Henderson Land and Swire Properties.