Crumbling US housing prices are unlikely to send the US economy into a tailspin, but the downturn could still hit certain sectors linked to consumer demand, making it worth your while to take some precautions with your portfolio.
Housing prices have skyrocketed across the US in recent years, allowing Mr and Mrs Jones to borrow money against the inflated equity of their homes in order to pay for luxury items, many of which are imported. A drop in housing prices in the globe's consumer powerhouse could halt that gravy train, especially hitting export-reliant economies such as China.
US Federal Reserve chairman Ben Bernanke, in a speech last Wednesday, said: 'I would estimate that slowing housing construction will probably take about a percentage point off [US economic] growth in the second half of this year and probably something going into next year as well.'
The pace of new home sales dipped to a three-year low this summer, although it showed slight improvement in August due to more competitive mortgage rates, while builders desperate for buyers began giving away bonuses ranging from cars to vacations and fireplaces. The median price of new homes in August fell for the first time since 2003, while used-home prices fell for the first time since 1995.
'The data looks pretty awful for the US residential housing market now, and this is reflected in the collapse of share prices for some of the home builders,' said Geoff Lewis, head of investment services at JF Asset Management.
So how should investors in Hong Kong react? Mr Lewis recommends investing domestically in such growth-promising sectors as banking, while steering clear of Asian exporters, which could see their year-on-year growth halved to around 10 per cent as US consumers become thriftier. Other areas that could see growth include domestic property, insurance and consumer goods targeting the domestic market.