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.