Gains evap­o­rate on Fed’s rate rise

Prop­erty mar­kets and fi­nan­cial ser­vices are most af­fected stocks

China Daily (Hong Kong) - - BUSINESS - By LUO WEITENG in Hong Kong sophia@chi­nadai­lyhk.com

Gains by Chi­nese main­land and Hong Kong stocks evap­o­rated on Thursday, af­ter the US Fed­eral Re­serve raised its short-term in­ter­est rate for the first time this year.

The bench­mark Shang­hai Com­pos­ite slipped by 0.73 per­cent, or 22.85 points, to fin­ish at 3,117.677 on Thursday, while the Hang Seng In­dex (HIS) in Hong Kong hit a four-month low by drop­ping 1.77 per­cent, or 397.22 points, to close at 22,059.40.

The Fed sur­prised mar­kets by fore­cast­ing three in­ter­est rate hikes next year, in­stead of the two quar­ter­point in­creases pre­vi­ously pro­jected, point­ing to a faster-than-ex­pected tight­en­ing path loom­ing ahead.

The Hong Kong Mon­e­tary Au­thor­ity im­me­di­ately fol­lowed the Fed’s lead by boost­ing the base rate by 25 ba­sis points to 1 per­cent­age point for the sec­ond time since 2006, a log­i­cal move to main­tain its cur­rency’s three-decade-long peg to the US dol­lar.

The base rate, charged by the HKMA through its dis- count win­dow, serves as the best in­di­ca­tor of in­ter­est rates in Hong Kong.

HKMA Chief Ex­ec­u­tive Nor­man Chan Tak-Lam said the mon­e­tary au­thor­ity would con­tinue to track US rate moves by in­creas­ing the city’s bor­row­ing cost in a pro­gres­sive man­ner. Such a ris­ing trend would not come with a de­lay and “is ex­pected to con­tinue to be af­fected by the scale of out­flows from Hong Kong dol­lar, in­ter­na­tional de­vel­op­ments and other fac­tors”.

Though the Fed in­ter­est rate hike is widely an­tic­i­pated, it could cause a shrink­ing mon­e­tary base of Hong Kong dol­lars.

The mon­e­tary base in Hong Kong at the end of Oc­to­ber was HK$1.61 tril­lion ($207.5 bil­lion), a drop of HK$700 mil­lion or 0.04 per­cent from the end of Septem­ber.

Rate-sen­si­tive sec­tors like prop­erty and fi­nan­cial in­dus­tries be­came the big­gest losers in Thursday’s trad­ing. The HSI Prop­er­ties Sub-in­dex tum­bled 2.6 per­cent, mak­ing it the worst performer among the four ma­jor subindices. HSI Fi­nance SubIndex slumped 1.84 per­cent, roughly flat with the broader mar­ket.

Ear­lier this month, the In­ter­na­tional Mon­e­tary Fund warned in its work­ing pa­per that the higher prop­erty val­u­a­tions in the Asia’s fi­nan­cial cen­ter mean the lo­cal economy is vul­ner­a­ble if in­ter­est rates climb faster than ex­pected.

The IMF flagged the soar­ing bor­row­ing costs, Chi­nese main­land-linked stress and a pos­si­ble down­turn in the real es­tate mar­ket as the three main risks loom­ing over the city.

ED­MOND TANG / CHINA DAILY

Pedes­tri­ans pass a Hang Seng In­dex screen in Hong Kong.

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