Hong Kong is losing the retail game to "new TST" with mainlanders

Sales are sorely suffering.

It has been noted that Hong Kong continues to lose out to a “new TST” (Tokyo-Seoul-Taipei) with mainlanders.

According to a research note from HSBC Global Research, it thinks Hong Kong will lose out from the emergence of a “new TST” –Tokyo-Seoul-Taipei, as opposed to Tsim Sha Tsui, the popular shopping district in Kowloon.

While this is nothing new, the report said, and it had started to cut estimates for Hong Kong in 2Q last year, HSBC Global Research has published a recap of where it believes Chinese mainlanders will go to from now on.

Apart from the Eurozone which has become attractive for FX reasons, the three cities of Tokyo, Seoul and Taipei have become more popular with mainlanders visitors (as the report considers MERS-related issues in Korea should be short-term in nature), lowering HSBC Global Research's conviction on Hong Kong-dependent stocks like Sa Sa.

In turn, the report continues to remain more optimistic about companies skewed to travel, notably CITS for
domestic Chinese tourism and the boom of Hainan travel retail, and Samsonite for global trends.

Here's more from HSBC Global Research:

As Hong Kong retail sales continue to suffer, uncertainty lingers for Macau gaming and we lack
conviction either way. While we like MGM China, we believe gaming is a sector where it is too late to
sell but also too early to buy.

For China, as far as staples are concerned, most companies should benefit from a low comparison base in
2H15; however, the poor weather in the past few months may lead to higher channel inventory and destocking
pressure in the coming months.

Amidst the uncertainties, we prefer sectors with non-cyclical drivers like mix improvement, and our top pick is the downstream dairy sector as we see structural upside from margin expansion and higher penetration. In China staples, we like Mengniu and Tenwow.

On the discretionary side, we like white goods leaders (notably Gree), with consolidation ongoing and a
cyclical recovery kicking in soon. Elsewhere in discretionary, Stella should benefit from a pick-up in orders. In cosmetics, we believe Shanghai Jahwa is well placed in the theme of Asian players taking share from Western brands.

Finally, looking at the few global consumer names listed in Hong Kong, we would highlight L’Occitane as a “margin reversion to mean” story and an exception to the rule of Western players losing out to Asian champions as its business model (mostly retail) and positioning (natural products) enable it to stand out.