The property stocks in Hong Kong experienced a major selloff, causing a sharp decline in the shares of Wharf (Holdings).
On Wednesday, the Hong Kong-based developer’s shares plummeted by 7.4%, marking its largest daily percentage drop in over a year. The negative outlook for the property sector in Hong Kong and China contributed to the decline, as the Hang Seng Properties Index fell by 1.9%.
Citi Research recently downgraded Wharf’s stock rating from buy to sell, pointing out an unattractive risk-reward ratio for the company’s shares.
Despite underperforming in all business segments, including property sales in China and Hong Kong, Wharf’s shares have managed to outshine other Hong Kong property stocks. This was mainly driven by expectations of potential corporate action, according to Citi analyst Ken Yeung in a research note.
However, Yeung believes that the possibility of the Woo family, who controls Wharf, privatizing the company is now diminished due to the high share price levels.
Instead, there could be a scenario where the Woo family opts to sell Wheelock Properties to Wharf in order to raise cash, Yeung suggests. Should this acquisition take place, investors could express disappointment and further drive down Wharf’s share price.