|
The Hang
Seng Property Index, which represents six of Hong Kong’s
biggest builders by market value, is down 19 percent
this year.
And
this, at a time when mass-market property values in the
city have risen 25 percent since November, and Merrill
Lynch & Co. forecasts a similar gain between now and the
end of 2009.
The
catalyst for rising home prices is
Hong Kong’s negative, real interest rates. Those, in turn, are a
result of the monetary authority pegging the local
currency to the US dollar and “importing’’ the US
Federal Reserve’s interest-rate cuts in an economy that
needs borrowing costs to go up, not down.
Someone
who keeps HK$1 million ($128,400) or more in a fixed
deposit with HSBC Holdings Plc. for 12 months earns 0.85
percent. That isn’t better than stuffing the cash under
a mattress because the inflation rate is higher than 6
percent.
Why not
use that surplus money to put a down payment on a house,
taking out a mortgage that costs just 2.5 percent a
year? And why not do it when property tycoon Li Ka-Shing
is saying that home prices in Hong Kong are on their way
up?
With
such compelling reasons to buy a house in
Hong Kong, it’s a surprise that property shares are in the
doldrums.
Or
perhaps not.
“Hong
Kong is one of the markets global investors have
gravitated to as a place to manifest global bearishness,
given the depth and liquidity of its stock and futures
markets,’’ says Merrill Lynch equity strategist Mark
Matthews.
Demand
outstrips supply
Besides,
real-estate developers are particularly vulnerable to
credit-market disruptions.
It’s
hard to say if Hong Kong property stocks, such as Cheung
Kong (Holdings) Ltd., controlled by Li, will be able to
hold on to the gains of the past couple of weeks.
Investors such as Francis Lun, general manager at
Fulbright Securities Ltd., are beginning to look at the
demand-supply gap for Hong Kong apartments: no more than
half the annual demand of 20,000 units is likely to be
served through 2009.
Still,
until surer signs emerge of abatement in global risk
aversion, homebuyers in Hong Kong may sleep better than
equity investors picking up shares in property
companies.
****
Singapore’s
Straits Times newspaper recently had a picture of one of
the island-state’s three major stockpiles of rice on the
front page. “Warehouse full of rice,’’ said the caption.
Food
inflation has become a global headache, but what makes
Singapore particularly vulnerable is that the city-state
of 4.6 million people doesn’t have any agricultural
production of its own. That makes it entirely dependent
on imports in a world where exporters are under pressure
to keep grain at home.
Singapore’s
rich government can issue citizens with free food
vouchers if it wants. But what will be interesting to
see is if Singapore does allow for faster appreciation
of its currency to combat commodity-price inflation when
the monetary authority holds its twice-yearly policy
meeting tomorrow.
The
Singapore dollar, currently trading at S$1.3802 to the
US
currency, has climbed 9.6 percent in the past year. In
Singapore, as well as in China and Malaysia, “currency
appreciation will remain the foremost anti-inflation
tool,’’ says Dwyfor Evans, a macro strategist at State
Street Global Markets in Hong Kong.
A
slowing economy, however, may make the authorities
reluctant to let the Singapore dollar rise too much,
especially with Finance Minister Tharman Shanmugaratnam
warning last week of “some slowdown’’ in growth.
***
“Once
the toast, now toast.’’
That’s
how brokerage First Global sums up its outlook for
emerging markets.
“What
will happen in
China
and India is that growth will fall off a cliff,’’ the
report says.
The
iShares MSCI Emerging Markets Index Fund, which trades
on the New York Stock Exchange, is down 5 percent this
year. That compares with a 32-percent increase in 2007,
and a 29-percent gain in the previous year.
Particularly vulnerable are economies that are net
commodity importers. In these countries, either surprise
inflation, or the authorities’ response to it, threatens
to derail economic growth and corporate earnings.
It’s
incredible how investors, even a few months ago, hadn’t
anticipated the risk.
Following the US Federal Reserve’s August 2007 cut in
the discount rate, institutions and individuals in the
United States poured $24 billion into emerging equity
markets in just seven weeks, more than in all of 2006,
says Ignatius Chithelen, a managing partner at Banyan
Tree Capital Management in New York.
“Most of
the funds poured in late, chasing past performance,’’
Chithelen says on the University of Pennsylvania’s
Knowledge@Wharton web site. “With the bulk of gains from
emerging markets already behind us, it may be time to
sell.’’
Even so,
equity funds in
Asia outside
Japan
took in a net $599 million from investors last week,
mostly for investing in China, Taiwan and Singapore. It
was the best weekly performance for Asian equity funds
this year, according to EPFR Global.
Are
investors being naive or is the emerging-market
pessimism overdone? The answer may lie somewhere in
between. |
