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