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Will the market tank tomorrow?

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  1. #21

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    Quote Originally Posted by jrkob
    @Viktri, thanks for the post, very refreshing, as always.

    I'm not sure I would draw a parallel between LINK and US Reits, though. US Reits pay dividends out of EPS (or more, they are allowed to do that via ROC), while LINK strictly pays out of cash-flow. As a result for example, SPG, which same as you I do not own but yes it's a large retail Reits*, has been paying an increasing amount of ROC these past few quarters on top of paying out their entire earnings. The 2020Q1 dividend is going to be declared in a couple of days and I think the cut is going to be pretty deep so the 15% before tax isn't really there in my view. While the 4% headline yield at Link is, my opinion, realistic (but let's see on 1/6 when they declare results).

    There is another issue: the level of leverage isn't comparable. For example SPG's leverage is 2x, while Link's is 1.2x. US Reits are traditionally much more leveraged than HK reits.

    Considering your background I know you already know all this but I just mention it for others who don't and would be tempted to jump and go buy SPG on Monday.

    * edit: actually I wonder if SPG isn't the largest Reits worldwide. Could be wrong and won't check but I think I saw that in one of Link's presentations.
    I think SPG is the largest traditional REIT (as in they're dealing with malls, commercial office, etc. but not telecomm/infrastructure stuff).

    Fair point on the yield comparison and agree on the balance sheet differences. I had written a bit on it earlier but thought I was getting too long winded so I removed it. I do want to emphasize that I'm not recommending SPG to anyone.

    I'm also not saying that Link's share price is going to crash and provide very high yields. I just think that the 10% drop was not really a big drop given the context surrounding China's economic slowing going forward, the previous/current quarter's business activity reductions due to covid, and all the other difficult news.
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  2. #22

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    Quote Originally Posted by Viktri
    I had written a bit on it earlier but thought I was getting too long winded so I removed it.
    On the contrary I think you should have, then let people decide what to read . Intel is always good to have.

    What I "think" of yesterday's drop for 823 specifically was that perhaps it is also due to the fact that it is included in a very large number of ETFs so these would have had to unload some of it (yes I know, larger caps may not have dropped as much, but still). I post below the day change of HK Reits yesterday.

    What I also think is that yesterday's move wasn't really a move against businesses in HK, but more a move against everything that is listed in HK, concerns about capital control. Most of the HK-listed stocks I own have very limited exposure in HK and they just drop the same.

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  3. #23

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    Quote Originally Posted by jrkob
    On the contrary I think you should have, then let people decide what to read . Intel is always good to have.

    What I "think" of yesterday's drop for 823 specifically was that perhaps it is also due to the fact that it is included in a very large number of ETFs so these would have had to unload some of it (yes I know, larger caps may not have dropped as much, but still). I post below the day change of HK Reits yesterday.

    What I also think is that yesterday's move wasn't really a move against businesses in HK, but more a move against everything that is listed in HK, concerns about capital control. Most of the HK-listed stocks I own have very limited exposure in HK and they just drop the same.

    You are the king of REITs after all - so which markets do they mostly own assets in if not HK?

  4. #24

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    SPG and Link are really two very different REITs, operating in two very different markets.

    SPG owns large malls in the US. Link owns predominantly small malls, wetmarkets, and car parks in HK, plus a couple of large malls in Australia and China.

    So, the sector they are operating in is different, as is the country. In the US there is a mall apocalypse, and for this reason SPG has been dropping a lot over the last years (-76% since 2016). According to most analysts (e.g. Brad Thomas) the drop in the price of SPG isn't really justified, because they have the best malls in the best locations. The malls that are closing are mainly in the suburbs, in the middle of nowhere, where people need to drive 30 minutes. This is not the case for SPG's malls. SPG also makes a lot of profits and has huge reserves to invest in modernise their malls. The argument is that one way or another, malls located in good places will always exist, as long as they reinvent themselves to satisfy shifting demand (e.g. some shops can even be transformed into offices). The payout ratio of SPG is only 82%.

    As you know, most of the business of Link is located in Hong Kong, and HK has a few differences with the US. Mainly: 1) The weather is rubbish, so when people go out, they spend their weekends in shopping centres (at least during the summer). 2) Shopping centres are located above MTR stations and bus interchanges, and below people's houses. Most people go to work using public transportation, so they go through the shopping centres owned by Link (and of course all the other Reits) daily. This means constant traffic, and sales. Of course I can see a change in the shops in HK malls. For example, the shops selling gold jewellery and beauty products to Chinese tourists will gradually disappear (I don't know why they are still open in the shopping centre near my house), but they will be replaced by other shops selling stuff for HK people. Though the rent will be lower, I don't see many vacancies in HK shopping centres (there are some in a shopping centre near my house, but it should be filled easily if the owners agree to cut the rent). Since Link owns predominantly shopping centres for HK working class people, I don't see much of a change in the number of shoppers (and profits) in the future. I can see a drop in Australian and Chinese shopping centres (and income from car parks). Perhaps someone can tell us how much of the total income to Reit comes from these sources?

    I believe both SPG and Link are rather safe investments, at present day prices, for dividend investors. Although SPG might drop more if the virus doesn't go away/there isn't a vaccine and malls are closed again, and Link will drop more if the PLA sends its tanks.

    Full disclosure, I own both SPG and Link.

    orel100x likes this.

  5. #25

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    Quote Originally Posted by Paxbritannia
    You are the king of REITs after all - so which markets do they mostly own assets in if not HK?
    I'm no king of anything but HK-listed Reits, as I believe these are the ones you refer to, are not well diversified geographically. I give you the geographical split of their properties below (back of the envelope calculations subject to errors):

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    If you want something more geographically diversified, perhaps look at Singapore, they have regional Reits.

  6. #26

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    So repeating the original question, will the market tank tomorrow?


  7. #27

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    Quote Originally Posted by hullexile
    So repeating the original question, will the market tank tomorrow?
    I do suspect it will end lower than Friday... Tank, I have no idea.

  8. #28

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    Since Wednesday night (HK time), EWH dropped a total of 8.6% including Friday night's session, while the HSI dropped only 5.3% on Friday.

    => the market is pricing another 3.3% drop tomorrow. That's what the market in the US says. Let's see what happens tomorrow...

    hullexile and AsianXpat0 like this.

  9. #29

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    Poster @shri is bringing to my attention the fact that EWH may not be a perfect proxy for HSI and this is true.
    In fact, looking at HSI Futures after market on Friday (I am lazy to check but I think they close at 3pm NY time), they were flat.
    So, perhaps no drama tomorrow .

    (thank you Shri for the correction)


  10. #30

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    I don't think we are in for a drama free week..

    Let's see...

    GentleGeorge likes this.

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