Both Wall Street and Hong Kong streets have impact on the city’s markets
- It must be a new and profoundly disturbing experience for local investors and homebuyers to have to pay attention not only to the US Fed’s rate movement and international trade tensions, but also domestic political unrest
There has certainly been blood on the streets of Hong Kong. But the smattering may not have reached the amount required by the infamous investment advice of the influential Baron Rothschild banking family on the best time to buy.
That may be why the city’s widely watched property market has not budged. The interest rate movement in the United States may be partly responsible.
As expected, the US Federal Reserve has cut interest rates by 25 basis points, or 0.25 percentage points. As required by the US dollar peg, the Hong Kong Monetary Authority, Hong Kong’s de facto central bank, followed with a cut to the base lending rate by the same 25 basis points to 2.50 per cent, the first in over a decade.
Lower rates will hopefully provide some respite for the Hong Kong economy, which has been battered by an ongoing trade war between Beijing and Washington, a slowing of the mainland Chinese economy, and unrest in Hong Kong fuelled by anti-government sentiments.
However, mortgage holders hoping for lower payments will be disappointed. Local banks are not following with their own rate cuts. Even so, the US’ central bank, the Federal Reserve, and the HKMA cuts at least provide some psychological support for local market sentiments battered in recent weeks by the turbulence, some of which has turned violent.
Adding to the psychological support is that US Fed chairman Jay Powell is holding out hope for further cuts in coming months. The financial markets anticipate up to three more cuts before the end of the year for a total of 75 basis points.
With China easing policy to boost economic growth, and local banks fiercely competing on interest rates to attract customers, the pressure on mortgage rates will go down, not up. Such expectations help support property prices.
The US rate cut signals the Fed has reversed tightening that started in late 2015. Depending on how steep the cuts will be, the reversal will provide a much-needed kick-start to the Hong Kong economy, which contracted 0.3 per cent in the second quarter from the first three months of this year, while annual growth was stuck at 0.6 per cent from a year ago. The currently low unemployment rate of 2.8 per cent may pick up.
If the anti-government fervour calms down in coming months while the rates regime continues to loosen, there may be light at the end of the tunnel for the city’s economy. But whatever happens, the local property market has a strange way of defying gravity.
It must be a new and profoundly disturbing experience for local investors and aspiring homebuyers to have to pay attention not only to the US Fed’s rate movement and international trade tensions, but also the domestic political unrest. What is happening both on Wall Street and local streets now have comparable impact on the city’s capital and property markets.
