Question of confidence
Stock analysts and investors predict that an expected rise in the share prices of Hong Kong’s three major banks, which posted bullish results last week, will lift the local stock market out of the doldrums.
This is entirely possible because of the three lenders’ substantial combined weighting in the benchmark Hang Seng Index. But the crucial question is whether their first-half results are strong enough to inspire investor confidence in the outlook for the second half of the year.
Probably, the banks will do fine in the coming months due to the strong income stream from their local operations. Loan demand, especially from the property sector, is expected to stay strong despite the specter of an interest-rate hike later this year.
There are clear indications that the US Federal Reserve will raise interest rates as early as September. But the increases are expected to be mild and progressive. They are not expected to create a shock that could throw borrowers off balance.
Under the linked exchange rate arrangement, Hong Kong is expected to follow the US in raising interest rates. This could add pressure on property prices, which have soared to what are widely seen as unsustainable levels.
But the impact of moderate rate increases is not expected to pose an immediate threat to the banking system or the property market that are deemed to be adequately shielded by cautionary measures imposed earlier by the central bank. Brisk sales and the short turnaround time of development projects have kept the average gearing of the major developers at manageable levels.
The biggest downside is the uncertain outlook of the Chinese mainland economy and the erratic performance of the Chinese stock market. On top of that is the specter of a tech startup bust.
Nobody expects an economic slump on the mainland. But the uncertainties surrounding the possible impact of the slowdown on asset value and the servicing of some local government debts are weighing heavily on the minds of many investors. Despite government efforts to stabilize share prices, many investors are still jittery as the highly geared stock market is going through the painful process of unraveling the tangled web of margin trade and over-valuation.
Hong Kong is already feeling the ripple effects of the mainland stock market malaise. The author is a senior financial editor at China Daily Hong Kong Edition. email@example.com