Air pollution takes the shine off HK's blue-chip landlords

Investment giant Merrill Lynch yesterday issued a dire warning on Hong Kong's air pollution, advising its clients to sell Hong Kong assets in favour of those in Singapore.

The advice is the first time one of the big investment banks has spelled out fears that pollution could erode the city's competitiveness. 'Buy Singapore office landlords, sell Hong Kong office landlords,' the report states.

It also came after Merrill Lynch, citing increased supply and lower demand, downgraded Central's largest landlords, Hongkong Land and Great Eagle, to a sell rating from a neutral. Hysan Development Company, the largest commercial property owner in Causeway Bay, was reduced to a sell from a buy.

'If air-borne problems persist at the same elevated levels that we experienced this weekend, we suspect that the demand curve will begin to reverse,' it said.

'Skilled professionals are departing Hong Kong because of this. More will follow,' it said, adding that Singapore stood to be a major beneficiary.

'The government in Hong Kong is relatively powerless to address the true cause [the Pearl River Delta] until Beijing gets tough. It could be a long and choking wait that many could choose not to endure,' it said.

Spencer White, a strategist with Merrill Lynch, noted that cost had already driven the company and fellow banking giant JP Morgan to move staff to Singapore.