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Wednesday, April 25, 2018, 19:19
Outside the box
By Peter Liang
Wednesday, April 25, 2018, 19:19 By Peter Liang

The surge in bond yield to over the psychological level of 3 percent, the highest since 2014, spoilt investors’ mood on Wall Street, sending the Dow down 425 points, or 1.7 percent on Tuesday.

Renewed fear of rising interest rates has spread to Hong Kong when the market opened on Wednesday. Selling pressure pushed the benchmark index down nearly 200 points in morning trading, reversing much of the gains the day before.

Investors were caught between the bullish news from the Chinese mainland and the specter of more aggressive rate hikes in the United States.

Recent reports suggested that the Chinese central bank was pumping liquidity into the market to shore up investors’ sentiment depressed by the looming trade war with the US. This was seen to have fueled a rush by investors for Hong Kong listed H shares of enterprises in the domestic-oriented sectors, such as property, finance, energy, food processing and retail.

But the bulls were rudely brought back to reality by the crash on Wall Street on Tuesday when the index dropped more than 600 points at one time. Investors were concerned that further increases in the benchmark bond rate would greatly increase the cost to borrow for mortgages and other consumer loans.

The resulting down turn in mortgage and consumer loan demand could hit corporate earnings making US stocks look even more overpriced than they are now after a nearly two-year bull run.

In Hong Kong, most analysts are saying that an increase in lending rates is imminent. This can happen as early as in June after the widely expected rate hike in the US.

The projected in rate increases in Hong Kong may be gradual and modest. But expectations of rising borrowing cost could cause give many prospective home buyers pause to think if it’s worth their while to deplete their savings on those over priced properties.


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