HSBC, Citibank predict Hong Kong’s economy will contract by up to 5 per cent this year before recovering in 2021

HSBC Private Banking expects GDP will contract 5 per cent this year, while Citibank has forecast a 4.6 per cent slump
11 of the largest Chinese firms listed in the US could relist in Hong Kong in the next three years, says HSBC

Hong Kong economy

Martin Choi

Published: 7:00pm, 29 Jun 2020

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Hong Kong’s economy is set to contract sharply this year before rebounding in 2021, with business activity expected to gradually pick up following a slump triggered by the coronavirus pandemic, according to forecasts by two leading banks on Monday.

The city’s gross domestic product (GDP) could contract by 5 per cent in 2020, and grow by 4.3 per cent next year, according to HSBC Private Banking. Citibank’s forecast was a bit more tempered, predicting a 4.6 per cent decrease this year, followed by 2.7 per cent growth in 2021.

“The outbreak of coronavirus has led to a sharp decline in foreign trade, consumption and business activity in Hong Kong,” said Fan Cheuk-wan, chief market strategist for Asia at HSBC Private Banking, at their investment outlook for the second half of 2020. “Even though we are still at a stage of gradual reopening, we expect economic activity to slowly resume in the second half of the year.”

Fan also expects countries around the world to gradually relax travel restrictions, which would help to support retail and consumption activity in Hong Kong as tourists return to the city.

“The impact of the Hong Kong government’s largest ever economic stimulus policies are also expected to be felt in the coming 12 months,” said Fan.

Both banks also predicted that the global economy would contract for the year, followed by a larger rebound next year.

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HSBC Private Banking predicted global GDP would contract 4.8 per cent in 2020, while growing by 5.8 per cent next year. US GDP was projected to drop 7 per cent before bouncing back 6 per cent in 2021, while China’s GDP growth would slow to 1.7 per cent and expand 7.5 per cent in 2021.

Citibank expects the global economy to decline a 3.5 per cent this year, followed by a 5.5 per cent climb in 2021.

“Investors should be aware that the economic rebound may be staggered at the beginning, as we are still facing the threat of a second wave of Covid-19,” said Wong Pak-ling, head of investment strategy and portfolio advisory at Citibank Hong Kong, during their investment outlook webinar for the second half.

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HSBC Private Banking said that it expects a U-shaped recovery after Covid-19, and expressed a preference for US, China and South Korean equity markets in the next six months.

“In the short term, we expect market concerns about the risk of a second wave of Covid-19 infections and the divergent paths to the reopening process in different countries will underpin an uneven and U-shaped economic recovery, which means market volatility and return dispersion will likely stay high,” said HSBC’s Fan.

“This reflects the tug of war between the liquidity-driven equity rally and the challenges in the economic reopening.”

The bank also predicted that 11 of the largest Chinese companies listed on Nasdaq would relist in Hong Kong over the coming three years, boosting the city’s Hang Seng Index and shifting its composition.

“Amid lingering US-China tensions, the trend of Hong Kong listing of Chinese American depositary receipts (ADR) will likely accelerate to mitigate regulatory risk in the US market,” said Fan.

This article appeared in the South China Morning Post print edition as: Economy set for sharp contraction this year

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