International | Oct 09 2008
By Chris Shaw
While the unfolding of the global financial crisis has seen some market analysts and commentators speculate Asian markets generally and the Hong Kong market in particular would remain largely immune from any problems on Wall Street, Standard Chartered was not one of them, often warning US problems would cause a turning of the tide in Hong Kong.
This has certainly occurred, as the group points out Hong Kong last week experienced its first bank run in a decade, which shows just how poor sentiment is at present. Compounding this are concerns over the possibility of banks in the Hong Kong market being exposed to bad assets in the US, which has resulted in a tightening of interbank liquidity levels.
As Standard Chartered notes, there are now signs emerging the problems are extending into the real economy as rising interbank rates are driving up interest rates on new mortgages, which is impacting on an already weaker property market. It is also making it tougher for companies to acquire necessary funding, leading the group to suggest growth in Hong Kong will slow from current levels.
Retail sales and exports are also slowing and the group expects the pace of the downturn for both will accelerate in coming months as expectations of a deeper than previously expected US downturn will flow through into the relatively open Hong Kong economy.
Also playing a role is the fact China is not coming to the rescue as was previously the case. The mainland Chinese economy is also slowing down, with falling household consumption on the mainland meaning less tourist dollars being spent in Hong Kong.
Having previously forecast 2008 GDP growth for Hong Kong of 4.6%, the group has now cut this estimate to 3.7%, while its growth expectations for 2009 have been more than halved from 5.0% previously to just 2.3% now. This means growth will be below trend levels of 4% year-on-year for as many as five successive quarters, though on the plus side Standard Chartered maintains its bigger picture view economic growth is set to slow to a more sustainable level rather than decline severely.
Supporting this view is the group’s analysis suggesting the Hong Kong economy will be to some extent shielded from the global recession thanks to the both the stimulus it enjoys from its location with respect to China and the combination of well capitalised banks, lower levels of household and corporate leverage, a relatively strong fiscal position and tight labour and wage markets.
The two wildcards to the group’s view are how deep the crisis and likely recession in the West turns out to be, as it will impact on sentiment along with more measurable variable such as property prices and household consumption levels.
The other is the level of interest rates, as any cuts elsewhere such as the co-ordinated move to cut interest rates globally seen last night may help bring down interbank lending rates, which would imply a boost to property and corporate markets in Hong Kong. But if this doesn’t change sentiment, the perceived counter-party risk currently being experienced may remain for some time, which would mean little impact on interbank rates until at least early in 2009.