The stock market tumbled nearly 1.5 percent in the morning, following Friday slide on increased concern about a rate rise.
Analysts said that the market was further clouded by the looming specter of a trade war between Hong Kong’s two largest markets, the United States and the Chinese mainland.
Apparently, Financial Secretary Paul Chan’s assurance of the government’s capability in maintaining currency stability has failed to ease investors’ heart. In his Sunday blog, Chan also noted that the widening interest rate differential with the US could force up local borrowing cost.
What weighs most heavily in the minds of investors is, of course, the outflow of overseas capital which was widely seen as a major factor in fueling the stock market rally and the property market boom in the past two years.
The outflow of overseas fund began to pick up momentum since the US interest rate hike in late March. In the past several weeks, the outflow was large enough to push the value of the local currency against the US dollar to below the floor of the band allowed by the linked exchange rate system, triggering central bank interventions.
Since late last week, the central bank is known to have bought more than HK$10 billion in the open market to prop up the exchange rate of the Hong Kong dollar. Its purchases have sent a signal that Hong Kong can no longer afford to keep bank lending rates unchanged as it did in the past six US rate hikes.
What’s more, the increase in the benchmark interbank interest rate, which represents banks’ cost of fund, in the past several days is widely taken as a clear indication of the rate trend. Many analysts expect that Hong Kong will have to adjust its rates in line with that of the US in the next hike, which is widely predicted to be in June.
Despite the impending rise in borrowing cost, property agents are still trying to talk up the market, predicting that average home prices will continue to rise. But savvy investors know better. They have been selling down property stocks for good reasons.