The fortunes of the Hong Kong banking sector this year will be closely tied to how the United States economy fares in the coming year, according to market watchers. While abundant liquidity is expected to continue to fuel demand for services in the retail banking sector, investment, commercial and wholesale banks will be hit if the US economy takes a major and prolonged fall.
Recently, there was grim news coming from abroad. Global commercial and investment banks, including big names such as Morgan Stanley, Goldman Sachs, Deutsche Bank and Citigroup, announced job cuts totalling tens of thousands as a result of the weakening US economy and credit crunch, triggered by the subprime crisis. Retail sales are also falling as Americans curb their spending.
The job cuts touched Hong Kong last month, when financial magazine IFR Asia reported that Bank of America laid off several members of its Asian loan and bond teams, including its head of debt capital markets Swarup Patel.
And there are fears that there will be further layoffs in other Hong Kong institutions because of growing concerns of a serious economic downturn in the US later this year.
'I am quite sure that the US is already in a downturn,' said George Leung Siu-kay, adviser for strategy and economics at HSBC in Asia-Pacific. 'The question is not whether it is in recession right now, but how long and deep it will be. That will depend on what actions the US Federal Reserve takes.'
While in Asia, strong domestic demand is expected to partially offset declines in the export sector. He also said it was highly likely that a substantial correction in the US economy would hurt the financial services sector through sentiment.