HKMA warns of asset-price swings
Hong Kong should brace for capital outflows and more volatile asset-price swings as the United States Federal Reserve’s balancesheet reduction and likely interest-rate increases should squeeze market liquidity, Financial Secretary Paul Chan Mo-po cautioned.
The finance chief said successive US interest rate rises would affect asset prices in Hong Kong.
Considering the likely rise in credit costs and high number of residential apartments set for completion in the next couple of years, property investors should guard against investment risks.
The US Federal Open Market Committee late on Wednesday decided to keep the federal-funds rate unchanged in a range of 1 percent to 1.25 percent. But it said it would start the previously announced plan to shrink its $4.5 trillion balance sheet by trimming assets worth $10 billion per month from next month.
The US Fed reiterated that it will not stop balance-sheet reduction unless the US economy is in deep trouble.
Interest rates remain on hold for the moment but financial markets widely expect the Fed will raise credit costs in December. At the meeting which concluded on Wednesday, the Fed estimated a further three quarter-point rate rises would be appropriate next year, the same as their projection made in June, and the entire interest-rate increase cycle should end in 2019.
“The terminal size of the US Fed’s balance sheet and also the impact of balancesheet reduction on global capital flows are still very much uncertain. Market liquidity should tighten gradually, and that may
Market liquidity should tighten gradually, and that may affect global capital flows. Asset prices may also become more volatile.” Eddie Yu Wai-man,
affect global capital flows. Asset prices may also become more volatile,” Hong Kong Monetary Authority acting chief executive Eddie Yu Wai-man said at a press briefing on Thursday.
“Apart from the path of US rate hikes and impact of balance-sheet normalization, the global financial market is also facing a range of uncertainties, such as the US debt ceiling and geopolitical risks. Their developments may lead to rapid changes in local interest rates or financial conditions,” he added.
Major mortgage-loan providers remain on the sidelines. Hongkong and Shanghai Banking Corporation on Thursday maintained its best lending rate at 5 percent while the Bank of China (Hong Kong) said its Hong Kong dollar prime rate to stand at 5 percent.
“Should the US Fed proceed with a third rate hike in December, the three-month Hong Kong Interbank Offered Rate (HIBOR) is expected to approach 1 percent by end of this year. A narrower yield differential is likely to ease some downward pressure on the Hong Kong dollar in the medium term,” said Carie Li, an economist at OCBC Wing Hang Bank.