Hong Kong Unrest Scars Retailer Sa Sa as Bears Pile In

(Bloomberg) -- Months of unrest in Hong Kong have taken a toll on a major cosmetics retailer in the city.

Short bets against Sa Sa International Holdings Ltd. are at the highest in five years, making it one of the most shorted stocks in the financial hub, according to IHS Markit Ltd. Sa Sa, already facing a slowdown in same-store sales toward the end of 2018, has lost nearly two thirds of its market value in 11 months. Its shares slid 24% in August as pro-democracy protests intensified in the city. Sa Sa turned ex-dividend Wednesday, and rose 3.7% after adjusting for trading without the right to dividends.

“Sa Sa has been a proxy of Hong Kong’s retail sales outlook, especially of mainland tourists’ spending in the city,” said Kenny Wen, strategist at Everbright Sun Hung Kai Co. “The rising short ratio reflects that investors are really bearish about the outlook of Hong Kong’s retail and tourism industry.”

Hong Kong’s retail sales could plunge to a decade low in August after a drop of 11.4% in July, Bloomberg Intelligence says. Tourist visits have slumped after three months of protests that have disrupted transport networks and impacted businesses from property developers and casinos to dried seafood sellers.

The bulk of visitors to the city come from mainland China, and they account for a significant amount of retail sales. Tourist arrivals to Hong Kong fell 4.8% from a year earlier to 5.2 million in July, the Immigration Department said. Analysts forecast that Hang Seng Index members will this year see the biggest decline in operating income since the global financial crisis.

Other stocks recently experiencing a spike in short interest include two that rely heavily on local sales. Lifestyle International Holdings Ltd. owns the Sogo shopping malls and Wharf Real Estate Investment Co. operates Time Square Hong Kong, near an area that’s been a flashpoint for protests.

Bearish wagers on companies with more diversified businesses are much smaller. Jeweler Luk Fook Holdings International Ltd., which generated just half of its revenue from Hong Kong last year, has short interest on around 1.4% of its free float shares. Sa Sa’s is nearer to 14%.

Sa Sa and Lifestyle are likely to “suffer the most” given their high earnings exposure to Hong Kong, Citigroup analyst Tiffany Feng wrote in a report last month. It was titled “Hong Kong Retail: A Miserable Summer.”

Sa Sa operated 118 stores in Hong Kong and Macau as of March, according to its annual report. In that, the retailer pegged some growth hopes on the expanding mainland market and e-commerce. Sa Sa’s investor relations team didn’t respond to calls and emails seeking comment.

“The short interest will keep hovering around high levels for local firms, as we haven’t seen a solution to ease the local unrest,” said Steven Leung, executive director at UOB Kay Hian Ltd. “Share losses could continue, at least in the short term.”

--With assistance from Amy Li.

To contact the reporter on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Will Davies, Philip Glamann

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