Mr. Shangkong
PUBLISHED : Monday, 25 March, 2013, 12:00am
UPDATED : Monday, 25 March, 2013, 11:02am

Unintended consequence of property price curbs: more stock market speculation

Unsophisticated investors who once sought a quick profit on property speculation seem now to be turning to stock market speculation instead

BIO

George Chen is Managing Editor for SCMP.com International Edition and Mr. Shangkong Columnist. George has covered China's political and economic changes since 2002. George is the author of two books: This is Hong Kong I Know (2014) and Foreign Banks in China (2011). George has been named a 2014 Yale World Fellow. Follow George on Twitter: @george_chen.
 

The Hong Kong government has been keen to curb fast-rising property prices since late last year, but all its efforts may be creating a new problem: more speculation in the city's stock market.

Some local stock brokers have noticed a new trend recently. They say more financially unsophisticated individual clients are calling on them for ideas for investments in the stock market. They prefer "small cap" stocks, rather than heavyweights, and aim to make quick short-term profits.

The trend may be related to the government's strong determination to cool down the city's property prices, which have already exceeded their last peak level in 1997.

Since the CY Leung administration now wants to collect more and different kinds of taxes from most property transactions, some property investors have chosen to leave the market for a while. They have cashed-out, and want to find a home for their cash.

So what to do? Investing some, if not all of that cash in the stock market seems like a natural move for many.

Stephen Sheung, head of investment strategy at SHK Private, the high-net-worth client division of Sun Hung Kai Financial, one of the biggest local stock brokers, is among those who has noticed the new trend. Some of his high-net-worth clients who had freed up their capital from selling properties earlier this year, due partly to increasing worries over the government's policies towards controlling property prices, were allocating more of their wealth into the stock market, he said.

"Those real estate speculators are bigger risk-takers rather than just income securers. After they sold houses amid the policy tightening, most turned to equities for higher returns, especially some Chinese names," Sheung said. Popular targets were Hong Kong-listed mainland companies.

You may think those financially unsophisticated investors know little about the stock market, and that their financing ability may not match that of big-name institutional investors like Fidelity or BlackRock. You may be wrong. A recent survey by Citibank found that just over 600,000 people in Hong Kong each owned liquid assets worth more than HK$1 million, a record high in the 10 years that Citibank has carried out the survey and a 14 per cent jump from a year earlier.

One in eight of the city's millionaires were housewives and many made their fortune from trading properties, the survey found.

It is believed the housewife investor network often takes "group action" - once an investor identifies a likely target she calls her rich housewife friends and they all place their bets.

The other question you may ask me is whether this really means stocks will rise and property prices will fall.

Well, I don't see any reason for Hong Kong property prices to fall sharply overnight. Those rich people may have too many properties and they just sell one or two to play their new games in stocks.

Unless they lose big money in stocks, they may sell more properties to support their stock investments.

 

George Chen is the Post's financial services editor. Mr. Shangkong appears every Monday in the print version of the SCMP. Like it? Visit facebook.com/mrshangkong

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