Hong Kong property stocks under pressure as the shine comes off real estate

Higher interbank lending rates are seen as a negative for property developers

PUBLISHED : Wednesday, 20 January, 2016, 6:44pm
UPDATED : Wednesday, 20 January, 2016, 7:17pm

Hong Kong property stocks fell sharply Wednesday, as investors abandoned the sector amid concerns over the interest rate outlook and darkening prospects for the local property market.

The Hang Seng property subindex fell 4.91 per cent from Tuesday’s closing level, outpacing a 3.8 per cent drop in the Hang Seng Index, which settled at 18,886.30.

The interbank lending rate, or Hibor, jumped to 0.5547 per cent on Wednesday, its highest closing level in 5 ½ years.

KGI Asia executive director Ben Kwong saidinvestors worried about further weakness in the Hong Kong dollar and the impact of higher local interest rates.

“We already feel the impact of the rising Hibor rate so with the further weakening, maybe close to the 7.85 level, we’ll see the upward pressure on interest rates will be even higher,” he said.

“So when the interest rates go up, which sector are you going to short?” Kwong said, implying that property developers would face a difficult period ahead.

Cheung Kong Property Holdings dropped 6.83 per cent to HK$41.60, while Henderson Land Development performed only slightly better, tumbling 6.52 per cent to HK$40.15.

Other companies, such as New World Development, saw a relatively milder drop, the shares falling 3.51 per cent by close at HK$6.59.

Tung Shing Securities equities analyst Ivan Li said the decline in Hong Kong stocks could also be attributed to fears about further US interest rate gains.

“There is now some concern that Hong Kong banks may follow suit and of course that will give a little more pressure to homeowners that pay mortgages,” he said.

Kwong said while stock markets were showing bearish sentiment and global currencies were doing poorly, it was hard to predict when property stocks would turn a corner.

“It depends on whether the Hong Kong dollar will continue to be under pressure and how significant an effort it will have on the interest rate movement,” he said.

“Now the market situation is pretty abnormal.... when the storm is coming people don’t want to pick up a flower on the street, they’re trying to find shelter.”