Hong Kong’s property and stock markets reap a confidence boost after Fed chair’s remarks

PUBLISHED : Wednesday, 30 March, 2016, 7:00pm
UPDATED : Wednesday, 30 March, 2016, 7:49pm

Hong Kong’s property and stock markets have received a confidence boost after remarks by Federal Reserve Chair Janet Yellen that it would move slowly to raise interest rates.

Analysts said her cautious approach may help stabilise Hong Kong’s home prices, which have seen a sharp fall of 13 per cent since September.

On the local stock market, the Hang Seng Index rallied 2.2 per cent, or 437.09 points to 20,803.39.

The surge came after Yellen said in a speech at the Economic Club of New York overnight that the US central bank would take a cautious approach to raising interest rates as uncertainties around the prospects for global growth pose risks, including the weakening Chinese economy and falling oil prices. The dovish remarks sparked an advance on Wall Street, with the S&P 500 closing at a three-month high.

The news helped to light up Asia stock markets, with Singapore’s Straits Times Index up 1.9 per cent, and South Korea’s Kospi adding 0.3 per cent. There were also healthy gains in Taiwan, Thailand, Manila and Jakarta.

In China, the Shanghai Composite Index surged 2.77 per cent, or 80.82 points to close at 3,000.65, posting the largest daily percentage gain in a month. The Chinese yuan rose to one week high against the US dollar.

“This is positive news to the stock and property markets. When the interest rate remains low, it will benefit high yield stocks as these companies could pay high dividends at 2 to 5 per cent a year, which provide a better return than bank deposits,” Mark Mobius, executive chairman, Templeton Emerging Markets Group, said.

Analysts said Yellen’s comments diminished chances of a rate hike at April’s policy meeting, while expectations for a June move were also lower.

Mobius said the move by the Fed late last year to introduce its first rate hike in almost a decade did not make sense.

“The inflation was not high, the US economy was okay but not good. The other parts of the world were not doing well,” he said.

While the US increased the interest rate last December, other markets were adopting monetary policies to boost their economies.

“China, Japan and Europe continue to print money. It is very difficult for the US to go against this international trend,” Mobius said.

“It is not a surprise to see she (Yellen) may delay,” he added.

In the wake of the dovish rate outlook, Hong Kong property developer stocks advanced. Sun Hung Kai Properties rose 3.18 per cent, Henderson Land added 2.64 per cent, and Cheung Kong Property 2.1 per cent.

Eva Lee, head of Hong Kong and China real estate research at UBS says the possible deferral of further US rate hikes may help to support Hong Kong home prices.

But Lee said the slower pace of rate hike does not mean home prices have rounded the bottom, as the dim economic outlook could bring on more downside.

While Hong Kong economic growth could fall to 1 per cent this year, from 1.9 per cent in 2015, she said unemployment could increase to 4.5 per cent this year, from 3.1 per cent in 2015.

She maintained her forecast of a 25 per cent fall in home prices for this and next year.

Additional reporting by Peggy Sito, Laura He and Naomi Ng