HK retail sales are likely to deteriorate further on the back of GBP,EUR and Rmb depreciation against USD. Office and residential demandwill also be impacted by weaker HK GDP and unemployment rate.

　　Prefer REITs over developers/landlords.

　　HK retail downturn to continue - as Chinese tourists look to travel overseas andHK outbound travel is growing driven by a stronger USD. Discretionary retail malloperators like Wharf and Hysan could continue to suffer. Please see (TouristsNot Coming or Residents Leaving (04 Apr 2016)).

　　HK office demand will be hurt by macro slowdown: Historically, HK officeexperienced negative take-up when HK real GDP growth fell below 2%. Financialmarket volatility will affect Central office demand.

　　HK residential - unemployment rate hike is the biggest risk: We are concernedwhether the HK employment rate will increase from current low level of 3.4%.

　　This could impact serviceability of monthly mortgage payments. However, itcould be the least impacted among three sub segments since the US Fed rate isexpected to be on hold and low interest rates could persist.

　　Stocks preference - Prefer REITs: We continue to favor HK REITs, defensive yieldplays. We have OW ratings on Link REIT (FY17 div yield 4.5%), Champion REIT(FY16 div yield 5.3%) and Fortune REIT (FY16 div yield 5.4%). Our global fixedincome strategist, Anton Heese, expected lower yields globally (link), hence favoryield plays like REITs.

　　CKP has slightly more EU/UK exposure than peers: CKP has 2-3% GAV exposurein the UK with two key development projects in London - Chelsea Waterfrontand Covoys Wharf. Before the EU referendum, we were expecting UK residentialsales to contribute 8-11% of FY17-18 EBIT. On the other hand, CKP could use thisopportunity to land bank in the UK.

　　Macro implications: Our global economist believes the EU referendum wouldlikely to constitute a global macro shock. Global GDP growth would likely fallbelow 3% in a high stress scenario, thus re-entering the danger zone for a globalrecession (What Would Brexit Mean for the Global Economy? (20 Jun 2016)).

　　USD/CNY will depreciate to 6.91-6.94 by end-2016 and further to 7.20-7.27 byend-2016, under the high stress scenario. This represents a decline of 5.5% fromcurrent levels to end-2016 and another 4.8% decline in 2017. Our Europeaneconomists forecast that after the EU referendum EURUSD and GBPUSD willdepreciate to 1.05 and 1.28 by end-2016, implying 5% and 7% downside (seeCross-Asset Strategy: What Leave Means, June 24, 2016).