• Fri
  • Dec 26, 2014
  • Updated: 1:46am
CommentInsight & Opinion

Caution about Hong Kong's economic outlook is warranted

PUBLISHED : Thursday, 14 August, 2014, 4:29am
UPDATED : Thursday, 14 August, 2014, 8:36am

The stock market has been on a roll, buoyed by positive sentiment over the launch in October of two-way share trading between Hong Kong and Shanghai. Home owners could never have been happier; housing prices hit record highs in June. Continuing low interest rates make loans affordable. The warnings of rough times ahead by Financial Secretary John Tsang Chun-wah and Monetary Authority chief Norman Chan Tak-lam may therefore seem overly pessimistic.

Three times this week, finance officials have called for caution. Chan has stressed that the "through train" has risks and the economy could come under pressure, particularly the property market, should the US raise interest rates. Share prices have been lifted by hot money from overseas to bet on the cross-border trading scheme; quick profit-taking could cause markets to plunge. Tsang has forecast a gloomy economic outlook that could be exacerbated should unemployment continue to rise and political instability - a veiled reference to Occupy Central - take hold. He releases the latest GDP growth projections tomorrow and has forewarned they will be lower.

Shuttered shops in Causeway Bay are a tell-tale sign that all is not as it should be. But for those who are still sceptical, perhaps believing that unaffordable rents are a more likely cause, there is a slew of economic data to support concerns. Retail sales fell by 4.1 per cent in May, the fifth straight monthly drop. Sales of jewellery, watches and precious gifts were down 28.2 per cent in June. The number of exports improved only slightly and the jobless rate has risen to 3.2 per cent from 3.1.

Beijing's announcement of a decision on electoral reform later this month could spur the Occupy Central movement into action and harden the position of pan-democrats. Visions of the dark days of Sars have been rekindled by the Ebola virus, which could have devastating consequences for the catering industry should it be identified here. Nor is the "through train" necessarily as sure-fire for investors as brokers are hyping it to be. Regulatory restrictions, a lack of knowledge about the companies being invested in and a gap in understanding of the scheme could lead to a sluggish, rather than meteoric, start.

Tsang and Chan are right to be cautious about the coming months. Their warnings may appear as if they see nothing but doom and gloom, but the outlook requires a need to be aware of the risks. To leap in feet first, without being prepared for what lies ahead, would be foolhardy.


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This article is now closed to comments

Who is responsible for writing this? This reads like a rushed teenager's report on the Hong Kong economy - pseudo research and all. SCMP editorial staff, where's the beef!?!
I agree we should be cautious, but I am confident that if you look at any point in time, you can find reasons for caution. The economy and world events are rarely green-lights all the way, there are always uncertainties and risks, which is also why investing can sometimes deliver returns to investors. I would be much more interested to know how the cautionary signs noted here are different than historical periods? What were the numbers a year ago or 5 years ago... Hard to know whether decline in sales of 4% is a lot or not, is unemployment going up by a tenth a lot or just a rounding error?...
Whenever these kinds of "warnings" are sounded, the more conservative HK public listen and hold off investing, whereas those with a little more inside knowledge invest and make money accordingly, with those who were initially cautious then investing last for fear of missing out.
Its very obvious that in the short term (next 3-4 months) the HK stock market is set to rise sharply.
"Tsang and Chan are right to be cautious about the coming months."
Never mind the coming months. They have been so cautious their entire career.
Always have always will.


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