Hong Kong’s prop­erty mar­ket re­silient enough to take on mild rate hikes

China Daily (Hong Kong) - - HK - PETER LIANG

Hong Kong’s bench­mark onemonth in­ter­bank rate (hi­bor) has surged in the past few days from be­low 0.2 per­cent a year ago to an av­er­age of 0.4 per­cent — a record six-month high.

Some an­a­lysts down­played the sig­nif­i­cance of the rise, at­tribut­ing it mainly to a tem­po­rar y mis­match of funds, forc­ing many banks to in­crease their bor­row­ings of short-term funds in the mar­ket to cover their long-term ex­po­sures. They ex­pect the sit­u­a­tion to cor­rect it­self quickly, bring­ing down the bench­mark rate to its pre­vi­ous low levels.

Oth­ers were less san­guine. They con­tended that the bench­mark rate’s surge was a pre­lude to the on­set of the in­ter­est-rate up c ycle that would be trig­gered by a widely ex­pected US rate hike next month.

But, it’s hard for in­vestors to pre­dict whether the strong US eco­nomic per­for­mance in the 2016 third quar­ter, sup­ported by an in­crease in con­sumer spend­ing, can be sus­tained. Some econ­o­mists ex­pect the pace of growth in the fourth quar­ter to start slow­ing to about 2 per­cent from 3.2 per­cent in the pre­vi­ous quar­ter.

That would mean that in­ter­est-rate in­creases in 2017 will be moder­ate and slow. The mar­ket seems to agree. In Hong Kong, in­ter­est-rate sen­si­tive stocks, par­tic­u­larly those in the prop­erty sec­tor, have largely sta­bi­lized af­ter the ini­tial shock weeks ago. Banks, which stand to gain the most from higher in­ter­est rates, have not per­formed as well as ex­pected, and the div­i­dend stocks, mainly the util­i­ties, are still in de­mand.

The bench­mark in­di­ca­tor has been mov­ing list­lessly and within a nar­row band in the past cou­ple of weeks. The fall in av­er­age daily turnover shows that many in­vestors have elected to stay on the side­lines while us­ing deriva­tives, rather than sell­ing stocks, to keep their gains from the re­cent rally.

Mean­while, the prop­erty mar­ket, which is sup­posed to be rate sen­si­tive, has re­mained ex­cep­tion­ally calm. The lat­est gov­ern­ment mea­sures to cool the homes mar­ket are re­ported to have helped de­press apart­ment pur­chases for in­vest­ment pur­poses. How­ever, prices of prop­er­ties in the pri­mary and sec­ondary mar­kets have been firm, in­di­cat­ing that the mar­ket is not as highly geared as some econ­o­mists had feared.

As such, it’s strong enough to ab­sorb moder­ate in­creases in bor­row­ing costs.

How­ever, prices of prop­er­ties in the pri­mary and sec­ondary mar­kets have been firm, in­di­cat­ing that the mar­ket is not as highly geared as some econ­o­mists had feared.”

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