Hong Kong Property Shares Sink as Currency Slump Spurs Concernby
Henderson Land tumbles 6.5%; Cheung Kong falls to record low
Three-month Hibor jumps to highest in more than 5 years
Hong Kong property shares fell by the most in almost five months as the city’s currency weakened and concerns deepened that borrowing costs will increase.
The gauge of property companies on the Hang Seng Index declined 4.4 percent at the midday-trading break, headed for its biggest drop since Aug. 24 and falling the most among the Hong Kong benchmark’s industry groups. Henderson Land Development Co. tumbled 6.5 percent and Cheung Kong Property Holdings Ltd. plunged 5.8 percent to a record low, as the Hang Seng Index slid 3.8 percent.
Hong Kong dollar forwards fell to their weakest level since 1999 amid speculation the city will end its currency peg with the U.S. dollar. The three-month Hong Kong interbank offered rate jumped to a 5 1/2-year high of 0.55047 percent Wednesday. That means potentially higher borrowing costs to home owners, as more than 80 percent of new mortgages in Hong Kong are tied to Hibor.
“To protect the Hong Kong dollar peg the government has to raise the interest rate," said Louis Tse, a Hong Kong-based director at VC Brokerage Ltd. “The property companies are high-beta stocks because you have to borrow during the development phase," with higher borrowing costs potentially weighing on home owners as well.
Hong Kong dollar’s twelve-month contracts fell as much as 0.3 percent to HK$7.8904 versus the greenback, beyond the HK$7.75-HK$7.85 range that the currency can trade within under the existing exchange-rate system.
Sino Land Co. and New World Development Co., which gets more than half their revenue from the city, retreated more than 4 percent Wednesday. Shares of Hong Kong real estate companies sank last year, with Cheung Kong Property tumbling 32 percent and Wharf Holdings Ltd. retreating 23 percent, as brokerages predicted a slide in property prices amid prospects for higher interest rates and a slowing Chinese economy.
Credit Suisse Group AG reiterated its underweight weighting on Hong Kong developers in a report on Wednesday, saying it expects retail and investment demand to shrink further because of higher costs and less rental yield.