So, with the property up­swing, there’s some com­fort in stocks

China Daily (Canada) - - HONG KONG -

Hong Kong’s bull mar­ket is widely known to be sup­ported by two key fac­tors — low in­ter­est rates and the re­cov­ery in property prices.

There is, of course, a less ob­vi­ous third fac­tor, which is the in­flux of over­seas cap­i­tal to take ad­van­tage of the Hong Kong dol­lar strength­en­ing against most re­gional cur­ren­cies.

All these work­ing to­gether have trig­gered a strong rally that be­gan in early July. Since then, the benchmark in­dex has shot up about 20 per­cent on sig­nif­i­cant in­creases in av­er­age daily turnover.

With shares trad­ing at an av­er­age mul­ti­ple of about 12 times and an av­er­age div­i­dend pay­out of more than 3.5 per­cent, Hong Kong eq­ui­ties are ob­vi­ously a much bet­ter in­vest­ment than bonds or most bank wealth man­age­ment prod­ucts. They cer­tainly beat bank de­posits on any terms in such a low in­ter­est-rate en­vi­ron­ment.

For over­seas in­vestors park­ing their money in Hong Kong eq­ui­ties, there is the po­ten­tial bonus of for­eign ex­change gains from the pro­jected ap­pre­ci­a­tion of the Hong Kong dol­lar against their re­spec­tive home cur­ren­cies.

An ex­pected US in­ter­e­strate hike later this year could be a damper. But state­ments from the US Fed­eral Re­serve have in­di­cated that the in­creases would be grad­ual and mod­er­ate. In­vestors are ex­pect­ing low in­ter­est rates to re­main largely undis­turbed in the fore­see­able fu­ture.

In fact, the cost of bor­row­ing that mat­ters most to Hong Kong peo­ple is ac­tu­ally go­ing down. The ma­jor banks are cut­ting the in­ter­est rate for mort­gage loans to 25 ba­sis points above the cost of funds to com­pete for mar­ket share in the busi­ness that pro­vides a ma­jor source of steady and de­pend­able in­come.

Ap­par­ently, many po­ten­tial homes buy­ers are find­ing such bor­row­ing terms ir­re­sistible. The surge in de­mand by pur­chasers ea­ger to lock in the low spread in mort­gage fi­nanc­ing has con­tin­ued to push up property prices, which started go­ing up in May this year. Since then, the mar­ket mo­men­tum has gath­ered strength.

The lat­est gov­ern­ment sur­vey shows that homes prices rose at a faster pace in July than in pre­vi­ous months, with the price in­dex mov­ing up nearly 2 per­cent, com­pared to 0.2 per­cent growth the month be­fore. At cur­rent lev­els, lo­cal property prices are just 8 per­cent lower than their peaks reached in Septem­ber last year.

It’s of­ten said that prop­er­ties are the bedrock of eq­ui­ties as many ma­jor listed com­pa­nies are ei­ther di­rectly or indi­rectly en­gaged in real-es­tate de­vel­op­ment or in­vest­ment. From what in­vestors are see­ing in the property sec­tor, they can find plenty of rea­sons to re­main bullish about stocks.


Ex­perts be­lieve in­vestors can find plenty of rea­sons to re­main bullish about the lo­cal eq­uity mar­ket as ev­i­dence of a re­cov­ery in the city’s property in­dus­try — the bedrock of eq­ui­ties — had sur­faced re­cently.

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