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Chart of the Week: Wharf REIC Shares Take Huge Hit

Wharf Real Estate Investment Company Limited (SEHK: 1997) shares are a value trap. Here’s why investors should stay away. – REIT dividend

Shares of property landlord Wharf Real Estate Investment Company Limited (SEHK: 1997), also known as Wharf REIC, have experienced an absolutely horrendous 2020. That’s been no surprise.

Mainly, the reasons make sense. Wharf REIC is the owner-operator of popular shopping malls in Hong Kong, such as Harbour City and Times Square. Its malls have primarily seen huge footfall from tourists and, in particular, mainland Chinese shoppers.

Meanwhile, Hong Kong has been hit by disruptive anti-government protests since the beginning of the summer in 2019.

Then came Covid-19 early this year, which shut down the border between Hong Kong and mainland China. Finally, a new national security law imposed by Beijing on the city has thrown into doubt the city’s future viability as the “gateway to China” to the outside world.

Clearly, all this has caused a massive hit to visitor arrivals in Hong Kong. For example, even though June saw a slight month-on-month increase in arrivals, on a year-on-year basis the number of visitors was down an astonishing 99.7%.

That has hit property landlords, and most of all retail landlords such as Wharf REIC. The property firm’s shares are down 47% year-to-date.

However, with the resurgence of a “third wave” of infections in Hong Kong, any hopes of a revival in tourist numbers in the foreseeable future have been dashed.

After initially climbing off a bottom in May, Wharf REIC shares are down 25% in just the last month alone (see below). On Friday, the shares fell over 5% on news of a consulate bust-up between China and the US.

Where to from here?

For shareholders, this has created a headache. Will Hong Kong be able to reclaim its crown as the go-to destination for shopping by mainland Chinese tourists?

With all the headwinds facing the firm, I don’t believe it can. The structural changes of behaviour will likely see Chinese tourists stay closer to home (within mainland China) and avoiding shopping in Hong Kong given the uncertain political climate.

Even if Covid-19 can be resolved before the end of 2020, there is no guarantee of a political resolution to the unrest in the city.

For investors with a long-term horizon, Wharf REIC shares are most likely one of the biggest value traps out there.

Wharf REIC one-month share price performance (HK$)

Wharf REIC share price

Source: Google Finance

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Tim Phillips doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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