Wharf REIC: Increasing Uncertainty Rating to High on Hong Kong Retail Headwinds

We are increasing our Morningstar Uncertainty Rating to High from Medium for narrow-moat Wharf REIC. In our view, the updated rating better reflects the headwinds faced by Hong Kong’s retail market, which is being negatively affected by net spending leakage as inbound tourist spending fails to make up for the loss in domestic spending by Hong Kong residents. In particular, the luxury retail sector, to which Wharf REIC is exposed, has suffered disproportionately more as luxury buyers shift to Japan to take advantage of the weak yen.