Citigroup Asset Management is sticking to what it calls a 'teapot' recovery for the United States economy but warns the upturn will be delayed until spring next year, leaving Hong Kong facing 12 more months of deflation.
The extended bout of deflation would result from the terrorist attacks in the US on September 11 and meant a longer wait for an earnings upturn by SAR property plays, said Anthony Muh, Citigroup's regional head of investment.
Through its currency peg, Hong Kong will be importing the deflationary effects of a looming recession in the US.
'Hong Kong doesn't have the currency mechanism to absorb some of that . . . impact,' Mr Muh said. 'All that is going to be adjusted through real asset prices and interest rates.
'The property sector will remain muted for a more prolonged period than we previously anticipated. We have shifted out our recovery for the property sector vis-a-vis prior to September 11.'
Citigroup has slashed its projections for growth and inflation to take into account the effect of the terrorist attacks on economies around the globe.
