Caution as HSBC raises growth forecast for year
Hong Kong's economy is expected to grow strongly this year, driven by firm mainland demand and consumer spending, HSBC economists say. Rising asset prices, however, remain a concern, some analysts warn.
The bank's economists have raised their gross domestic product forecast to 6.4 per cent from 5.5 per cent. They said the mainland's economic growth would continue to bolster demand for goods from the city.
In addition, the city's minimum wage legislation, which took effect in May, has had little impact on Hong Kong businesses, which are gaining from the mainland and local household spending.
However, Frances Cheung, Credit Agricole's senior strategist for Asia, excluding Japan, expressed concern about the sustainability of Hong Kong's economic growth.
Cheung warned that low interest rates might mean that companies had not priced in risk at the right levels.
The Hong Kong dollar peg to the United States dollar means that the Hong Kong Monetary Authority has to move in lockstep with the US Federal Reserve on interest rates.
As a result, the HKMA has sought to make borrowing more expensive by asking banks to tighten the loan-value ratio of mortgage loans.
Last month, the HKMA announced a cut in the maximum amount that banks could advance on a mortgage loan for homes valued above HK$10 million, from 60 per cent of the property's value to 50 per cent. For properties priced between HK$7 million and HK$10 million, the loan amount will be lowered from 70 per cent to 60 per cent, and the total loan value must not be more than HK$5 million.
While the new rules by the banking regulator have reduced the number of real estate transactions, it has not had a significant impact on local property prices.
Other analysts warn that Hong Kong's property market, which is now at record high levels, could face a sharp correction in the event of an external shock.
The local stock market, meanwhile, has seen a sharp fall in liquidity, as skittish equity investors cash out from emerging markets because of inflation fears.
Garry Evans, global head of equity strategy at HSBC, said US debt woes would weigh on investor sentiment.
The major credit rating firms have warned that they would downgrade the AAA ratings on US debt if the government defaults. They demand Washington come up with a solid plan to cut the deficit.
12%
The rise in local residential property prices this year, after prices soared by 24 per cent last year
