While Iraq may be front and centre on most investors' radar screens, those putting their money to work in Hong Kong have got a new factor to worry about - how the 24-hour opening of the mainland border will affect their holdings. Core Pacific-Yamaichi is one of the first brokerages out of the gate with an analysis of the winners and losers from freer traffic flows with China. Top of their agenda was looking at the effects on the SAR property sector from greater integration with the Pearl River Delta as battered Hong Kong residential prices are expected to fall further, particularly in the New Territories, with people buying cheaper flats over the border instead. Stocks such as Henderson Land and Sun Hung Kai Properties, with their relatively larger land banks in the New Territories, are often cited as stocks likely to be hit by the border factor. However, Core Pacific-Yamaichi believes that 'concern has been exaggerated' for Hong Kong property stocks. 'We believe the news has already been priced in for the Hong Kong listed property counters,' the report said. Core Pacific-Yamaichi has 'buy' recommendations on Cheung Kong, which is currently trading around 15 times forward earnings, and Sun Hung Kai Properties, which is trading around 12.3 times. Hong Kong people still invest relatively little money in mainland property, which means the local market should be relatively unaffected. Core Pacific-Yamaichi estimates Hong Kongers spent HK$1.99 billion on mainland property for the year to November last year, half of it in Shenzhen. In contrast, they spent HK$68 billion in Hong Kong's primary residential market. 'We therefore do not expect that the Hong Kong property market will be materially affected, although the local property market in Fanling and Sheung Shui districts will see some price pressure,' according to Core Pacific-Yamaichi. CLSA analyst John Saunders argued property companies were relatively safe as there was little incentive for Hong Kongers to move into a flat across the border. People were also unlikely to move to Shenzhen and commute to work in Hong Kong as the cost of living over the border was not much cheaper when the higher tax rates and other charges were taken into account. 'When you account for the different tax rates and the different mortgage rates and you also price in the costs of commuting, then effectively that value has already been arbitraged away,' said Mr Saunders. The effect of the move to 24-hour opening is also muted because it does not make commuting across the border any easier for daytime employees, he said. People could already commute across the border as it was open from early morning to late evening. Brokers are divided on the impact on retailers, particularly at the lower end of the market. 'It will encourage more people to spend and consume across the border so Bossini and Giordano, they will be among the losers,' said Phillip Securities director Louis Wong Wai-kit. In contrast, Core Pacific-Yamaichi expects little impact on retail stocks from the 24-hour border opening. Most retailers have already set up shop in major cities in China, including Shenzhen, so would see a rise in sales over the border to counter a loss in SAR business. While the round-the-clock border opening will make it easier for people to shop in Shenzhen, it will also make it easier for mainland tourists to come to Hong Kong. Mainland tourists to Hong Kong also tend to spend more than Hong Kongers who regularly commute to Shenzhen for shopping. Core Pacific-Yamaichi has a 'hold' recommendation on Giordano and a 'buy' recommendation on Esprit. Giordano is currently trading at around 10 times forward earnings while Esprit is relatively expensive at about 16.5 times. Hong Kong port operators such as Pacific Ports and Cosco Pacific could gain from the border opening, according to some analysts. 'Some [Hong Kong] port operators may benefit from it because you can see the port in China is very busy,' said Tung Tai Securities associate director Kenny Tang Sing-hing. Having 24-hour access would increase the relative attraction of the SAR's ports, he said. But Core Pacific-Yamaichi played down that factor. 'Those companies that do not transit their cargo through Hong Kong are unlikely to change their practices, as shipping through Hong Kong is still much more expensive than shipping through Yantian or Shekou,' according to the Core Pacific-Yamaichi report. 'The 24-hour opening will at best attract some urgent cargo, given the more frequent shipping service in Hong Kong. However, the increase is expected to be insignificant.' Graphic: cros31gbz
