Champagne And Prozac For Hong Kong's New Year
Hong Kong's stock market will have a lot to digest when it reopens on Feb. 3, after the observance of the Chinese Lunar New Year. Consider the worry list: rising interest rates, falling property prices, souring Sino-American trade relations, prospects for slower growth in China, and uncertainty surrounding Deng Xiao-ping's failing health. It's little wonder that the Hang Seng stock index, already in a yearlong decline, has plunged 23% since Nov. 16.
However, the bear market is now well advanced, based on past experience, and it may be close to its nadir, say many analysts. Property stocks rallied after the government land auction on Jan. 25, suggesting some life in the real estate sector. Some 70% of Hong Kong's businesses derive a portion of their earnings from real estate.
Property values have been hit especially hard by hikes in U.S. interest rates, which have pushed up rates in the territory, since the Hong Kong dollar is closely tied to the U.S. dollar. But after the Federal Reserve's hike on Feb. 1, speculation is growing that Fed tightening is about finished for this cycle.
Many fear that a China-U.S. trade war would dent Hong Kong's huge reexport business. Reexports--goods made elsewhere but shipped through Hong Kong--account for 80% of the territory's exports. However, reexports from China have been slowing for three years, as growth on the mainland has cooled off from 13% in 1993 to 11% in 1994 to a projected 9% this year, and as China's shipping capacity has increased.
Most observers expect Hong Kong's economy to grow 5.5% this year. High rates and a plunging stock market have depressed consumer incomes and spending. But persistent, if slower, growth in China and better growth globally in 1995 will continue to power exports. In the short term, share prices will remain vulnerable until current worries ease. But further out, Hong Kong is well positioned as the financial center of the world's fastest-growing region.