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Oil Price, Interest Rate Concerns Have No Prolonged Effects on HK Economy
Oil price and interest rate concerns will have no prolonged effect on Hong Kong's economy, said Monday Steven Li, deputy head of regional research for Chase JF.
Ahead of his departure for Chase JF's sixth annual Asia Conference in New York, Li told Xinhua that he remains optimistic about the medium term outlook for the Hong Kong market.
The recent market correction that made Hang Seng Index (HSI) below 15,000 points has come amid concerns over rising oil prices and diverging views on interest rates, he said, noting that oil is not a concern for Hong Kong, given its status as a service-based economy with only 6 percent of GDP in manufacturing.
"As far as interest rates are concerned, we don't expect U.S. rates to rise, and Hong Kong's real rates are expected to fall by 400 basis points by the first half of 2001 as deflation diminishes," he said.
He said large caps such as Hutchison, China Mobile and Sun Hung Kai Properties have fallen to very attractive levels following the recent correction, while local banks have fallen excessively on interest rate fears.
Hong Kong scored a year-on-year GDP growth rate of 12.8 percent in the first half of this year, said Li, who is confident that the full year 2000 forecast of 9.6 percent will be achieved.
While overall growth will moderate due to slowing exports, significant improvements are expected in the domestic economy as unemployment falls and deflation moderates, he said, noting that this would bring considerable benefits to listed equities.
Banking, real estate and retail sectors are expected to see improved operating conditions, he said, while tourism and office property have already seen noticeable improvements.
"As we enter the fourth quarter of this year, fund raising is emerging as a critical issue," Li noted.
Fund raising to the tune of 12 billion U.S. dollars is expected in October, including the placement of Pacific Century Cyberworks (PCCW) and the Initial Public Offerings (IPOs) of Sinopec and Hong Kong MTR.
These fund raisings are expected to put significant downward pressure on the market, particularly on telecom and China-related stocks, he pointed out, adding that the market performance will improve dramatically after the completion of these fund raisings.
Li said his earning forecast for the HSI has recently fallen, but the reason is technical in nature, as three very high P/E ratio stocks replaced lower R/E ratio stocks in HSI constituents in August.
Changing constituents have also resulted in a lower dividend yield for the market, given the low payouts of the new constituents relative to the shares they have replaced, he explained.
This had also lead to some concern that fund raising could have a greater impact on the market, as the smaller amount of cash being paid is resulting in higher net cash calls, he noted.
The index could become more volatile given the trading histories of the new constituents, he said.
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