Given that the US federal Reserve increased interest rate by 0.25%, the escalated China-US trade war tension and the upcoming vacancy tax in Hong Kong, the world’s most expensive property market prices drop about 2.5-5% which compared to last few months.
Together with major Hong Kong banks raising their prime lending rate for the first time for decade, the property bullish market in Hong Kong has come to the end. People in Hong Kong are witnessing the economy is going down in 2018. The purchasing power from mainlanders are weaken due to the RMB devaluation. The HS index has already dropped from the top by nearly 5000 points. Hong Kong economy growth depends on Chinese economy and Hong Kong lacks economic characteristic after hand-over. Hong Kong does not have any developments on special or significant areas as such AI platform, IT or creative technology industries. Hong Kong economy growth is mainly leading by banking and housing markets. Most of the economy analysts believe that the bullish stock markets and housing markets in Hong Kong are benefited by the hot money from China.
When the Hong Kong economy is going down, industrial productions will drop, retail sales will drop, consumer confidence will drop, new jobs will drop and finally housing price will drop. House price will always be the last thing to drop. Once it begins to drop, the correction will be 5-10 years because property is not a liquid asset. If there is a recession in Hong Kong, no one can get a mortgage from bank and you cannot sell at good price.
US-China trade war, turmoil of emerging markets, devaluation of RMB and China slowing economy push Hong Kong stock market from bullish to bearish. Hang Seng Index ended at 26,422.55 yesterday which was 20% lower than the peak of January in this year.
After the dead cat bounce during the past 2 weeks, there is a steep decline in Hong Kong stock market and I believe that the bottom hasn’t be reached. While lots of Hong Kong investors saying “Be greedy when others are fearful” and going to buy stocks in lower prices, I am considering “Be fearful when others are greedy”. There are a couple of reasons to believe that the stock prices are not cheap enough. Firstly, the US-China trade war tension hasn’t been released. Each time Trump threatens new traffics on Chinese goods, both mainland and Hong Kong stock markets tumble. And two sides are not expected to come to a solid agreement or compromise in a short period of time. Secondly, nervous investors are yanking money out of the emerging markets. As China is considered to be the world biggest emerging markets, hot money is fleeing China now. Together with the China slowing economy and RMB devaluation, China is no longer attractive for foreign investors. Thirdly, Hong Kong is going to follow the US Federal Reserve to rise interest rates in September which will make investors consider more to borrow cash and buy stocks. Besides, Alibaba co-founder and chief Jack Ma is going to retire from the Chinese e-commerce giant. Is it another factor implies that there will be a sharper-than-expected slowdown in China economy this year?
Do you see any attractive factors excluding lower prices to buy stocks in HSI? Technically, I will see resistance at 26,000 area and then 25,600 for a possible bottoming signal in September.
Hong Kong’s property values keep rising during the past decade. However, with the Chinese economy slowing down and the US dollar being stronger again, a booming Hong Kong property market is at risk.
A number of big banks in Hong Kong, including HSBC have lift rates on new mortgages in last week and it will cause a correction and discounting for housing market in 2019. Hong Kong has the classic symptoms, such as an overvalued housing market and high debt, which have caused many past financial crises. These symptoms will leave this city become vulnerable to an Fed hiking cycle.
The Hong Kong housing market looks massively overvalued and the property market sentiment is going to turn negative. Coming with the slowdown of the Chinese capital being channeled into residential market, investors are being more alert to signs of sliding in Hong Kong property market.
Stock markets in Hong Kong and China are still shuffling today. Individual investors should take a wait-and-see approach instead of buying more stocks.
If the stock prices keep going down, the bubbles of the real estate markets in China and Hong Kong will burst. The real estate prices are unaffordable for many people in China and Hong Kong for so long. For users, it is not a perfect time to buy flats with mortgage loans this year. Furthermore, if the bearish markets eventually happens in China, that will be the first time for people in China to face financial crisis since the reform and opening-up policy in 1978. Will China’s government have enough experiences to tackle the economic bubbles and collapse? China’s government is considering RMB devaluation to fight against the US tariffs. However, the officers may need to consider the impacts of monetary policy on the baby boomers retirements very seriously. If the assets in China are forced to devalue, that will become a big issue for social stability in China.
Trade war anxiety is spreading in the stock markets especially in the US, China and Hong Kong.
While China’s government has unleashed $108 billion in reserve cut for most banks, the stock markets in China and Hong Kong are still shrinking surprisingly. And Hang Seng Index and Dow both have nearly 10% decline from previous highs. Some greedy individual investors just cannot wait to buy stocks in this bearish sentiment. However, for the major investors, they are looking for not less than 20-30% gains from the stock markets.
Assume Dow will increase to 26,000 points and HSI will get back to 32,000 points in the future, the stock prices will still have 10% or more corrections and there is still a period of time to be patient.
When the trade war tensions escalated, investors should stay away from Chinese stock markets, especially Hang Seng Index.
Last Tuesday, HSI tanked nearly 700 points and plunged around 2% after US president Donald Trump threatened new tariffs on Chinese imports. And today, HSI drops 1% even though China’s government released 700 billion yuan in cash to markets. We will see that the major investors are not going to buy more stocks from HSI and actually they might already locked in profits before the large fall. While Xiaomi opens its retail book today, I may suggest individual investors think twice before subscribing during a bearish market sentiment.
The stock market is a device for transferring money from the impatient to patient. Be patient!
In Hong Kong, real estate prices are sky-high. As the housing prices keep rising, some hongkongers just cannot wait to buy flats while some are worrying about they cannot afford to buy.
Let talk about the real estate phenomenon in Hong Kong. Firstly, the prices are at an all-time high. Secondly, most of the latest apartments are micro flats which are less than 200 sq ft and too small to live. Thirdly, many investors target to gain from property market.
If you were Hongkonger, would you buy a flat in Hong Kong? Some may say “Yes” as there seems to be no reason for property prices to plunge. However, I may say “No” for this decision now. In my opinion, the prices are too high and are absolutely not affordable for local Hongkongers. And that is the reason why Hongkongers try to buy properties in Japan, Taiwan and other East Asia countries. Furthermore, one of the reasons why the property prices keep rising is the hot money from China. Those investors do not plan to live in Hong Kong and they just want capital gains. They must lock in their profits by selling and they are waiting for the perfect time. Property investment is different from stocks/funds/commodities investments, property is illiquid and it would take time to sell in order to raise cash and release capital. While the US escalate the trade war with China, and it may trigger the Chinese investors to sell their properties. Just wait for the bubble burst in Hong Kong property market which is going to happen in 2018.