Higher in­ter­est rates a ‘mi­graine’ for both stocks and de­vel­op­ers

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

While the US stock mar­ket rally is ex­pected to keep go­ing in 2017, Hong Kong’s has slipped into the dol­drums, with the lead in­di­ca­tor hav­ing lost an ag­gre­gate 1,500 points since its Septem­ber peak to the 22,000 level.

Stock an­a­lysts have said they can’t see a turn­around in lo­cal stocks any time soon. There will be oc­ca­sional bursts of in­ter­est, but the over­all trend points down­ward in the next few months. The Hang Seng In­dex slipped 0.03 per­cent to 21,568 points when the mar­ket re­opened o n We d n e s d ay a f t e r t h e Christ­mas hol­i­day break.

The pre­vail­ing low daily av­er­age turnover — about HK$60 bil­lion — on the Hong Kong bourse is widely taken to in­di­cate that over­seas in­vestors are shift­ing their fo­cus on the US, and lo­cal in­vestors are sit­ting on the side­lines. Some an­a­lysts have warned that if the in­dex drops be­low the psy­cho­log­i­cal 20,000-point bar­rier, it could trig­ger a stam­pede by lo­cal in­vestors.

T h a t ’s s t i l l a l o n g w ay to go. An­a­lysts ex­pect the mar­ket to fluc­tu­ate within a nar­row band of be­tween 21,000 and 22,000 in com­ing months, with very lim­ited up­side po­ten­tial. Nearly all the stocks in the key bank­ing, prop­erty and util­ity sec­tors have lost ground.

If you were to pin the blame for the mar­ket’s woes on one sin­gle fac­tor, then it has to be surg­ing in­ter­est rates. The strong eco­nomic per­for­mance, ro­bust em­ploy­ment data and grow­ing con­sumer spend­ing in the US have greatly height- ened ex­pec­ta­tions of rapid in­creases in bor­row­ing costs next year.

When that hap­pens, Hong Kong will have to raise its in­ter­est rates too to de­fend the pegged ex­change rate mech­a­nism. And, it will have to do that against the back­drop of an eco­nomic down­turn and shrink­ing loan de­mand.

High bor­row­ing costs can achieve what the govern­ment has failed to do in the past sev­eral years — push­ing down prop­erty prices. But that may not be so good for prospec­tive homes buy­ers be­cause af­ford­abil­ity is not de­ter­mined so much by the price of the prop­erty, but rather by the size of the monthly mort­gage loan re­pay­ment.

A de­cline in proper ty prices is bad for the stock mar­ket as most of the ma­jor listed com­pa­nies are di­rectly or in­di­rectly in­volved in the prop­erty busi­ness ei­ther as de­vel­op­ers, part­ners or fi­nanciers.

A de­cline in prop­erty prices is bad for the stock mar­ket as most of the ma­jor listed com­pa­nies are di­rectly or in­di­rectly in­volved in the prop­erty busi­ness ei­ther as de­vel­op­ers, part­ners or fi­nanciers.”

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