J.P. Morgan: Hong Kong August retail sales improved slightly; maintains "Overweight" ratings on LINK REIT (00823) and WHARF REIC (01997)

J.P. Morgan released a research report stating that Hong Kong's August retail sales growth slightly accelerated year-on-year to 6% (vs. 5% in July), mainly supported by strong growth in electrical products. Looking ahead, with September visitor arrivals to Hong Kong up 22% year-on-year (partly due to a lower base, as one No. 10 and one No. 8 typhoon signal were issued during that period), the bank expects Hong Kong's September retail sales to record mid-to-high single-digit year-on-year growth. The bank maintains its "Overweight" ratings on LINK REIT (00823) and WHARF REIC (01997), with target prices of HK$43 and HK$35.7 respectively. The bank noted that August retail sales of necessities moderately accelerated year-on-year to 4% (vs. 3% in July), marking 17 consecutive months of low-to-mid single-digit positive growth; with the cross-border e-commerce penetration trend appearing to stabilize (though not yet declining), necessity retail is expected to continue a mild recovery. Non-necessity retail sales growth slightly accelerated from 6% year-on-year in July to 7% in August, mainly driven by exceptionally strong growth in electrical products (up 29% year-on-year) and jewellery and precious items (up 12% year-on-year). By category, the better performers included durable consumer goods (up 14% year-on-year in August), jewellery and precious gifts (up 12%), and other consumer goods (up 8%); the weaker performers were fuel (down 12%) and department stores (down 3%). The bank is bullish on LINK REIT due to: (1) spot rents stabilizing, with rental adjustments expected to improve in the fiscal year ending March 2028; (2) a dividend yield of 6.9%; (3) potential inclusion in the Stock Connect in the first half of 2027, along with upside risks from capital recycling and potential new strategies under the new CEO (taking office in March 2027). However, the bank also noted that the recent rebound in the 10-year government bond yield (now above 5%) may pose short-term pressure on REITs overall. As for WHARF REIC, J.P. Morgan believes that tenant sales at Harbour City will maintain positive growth in the second half of 2026 and record positive rental adjustments in 2027; the continued depreciation of the Hong Kong dollar may support tourist spending (though if HIBOR trends higher, there is also downside risk to earnings).