Hong Kong Overheating Risk Seen by HKMA’s Chan as Debt Rises

May 4, 2013 Leave a comment

Hong Kong Overheating Risk Seen by HKMA’s Chan as Debt Rises

Hong Kong’s economy is at risk of overheating after household debt rose to a record 61 percent of gross domestic product, said Norman Chan, chief executive of the Hong Kong Monetary Authority.

“Hong Kong’s consumption and personal-debt growth have consistently outpaced overall economic growth,” Chan told lawmakers today, citing risks to “macroeconomic stability.”

While the housing market has shown signs of cooling after extra curbs in February, it’s too early to say that it’s in a downward cycle, Chan said. A declining current-account balance is a “warning signal” that consumption and the economy are at risk of overheating, he said.

Hong Kong home prices, the most expensive among major global cities, last month fell the most in three years after the government imposed its harshest measures yet to curb prices and as lenders raised mortgage rates for the first time since 2011. Chan’s comments come amid signs that the global economic recovery is faltering, with industrial and manufacturing data from China, Japan and South Korea less than estimates.

In December, the HKMA said the overheated property market is increasingly disconnected from the rest of the economy. Sanford C. Bernstein H.K. Ltd. said prices could fall as much as 25 percent after the government stepped up measures to curb an asset bubble and banks raised mortgage rates.The government on Feb. 22 doubled the stamp duty on all property transactions higher than HK$2 million ($258,000). The HKMA has told banks to maintain the risk weighting for new home loans at a minimum of 15 percent to help protect them against a drop in home values.

Wealth Effect

Chan cited an “ultra-low interest rate environment” as a factor in the economic risk, adding: “When property values appreciate, people think they have more wealth even though they haven’t yet sold the asset.”

In a February briefing of lawmakers, Chan cited household debt to GDP ratios of 58 percent to 59 percent in the third and fourth quarters of last year.

Chan said the monetary authority will monitor whether any more property measures are needed.

The city’s economy may have expanded 2.5 percent in the first quarter from a year earlier, according to the median forecast of six economists surveyed by Bloomberg News, ahead of a release on May 10. That would be the same pace as in the fourth quarter.

To contact the reporters on this story: Simon Lee in Hong Kong at slee936@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

Filed under Macro Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment