Residential transactions in Hong Kong declined by 5.4 percent to HK$489.49 billion from a year ago for the first 11 months, while the number of deals dropped by 4.9 percent to 53,813, data from the Land Registry showed. They are both the lowest readings since 2016.

The official private home price index, meanwhile, fell by 0.6 percent to 380.9 in October, a half-year low, according to the Rating and Valuation Department. But that was still 0.44 percent higher than December last year, before the outbreak of the Covid-19 pandemic.

Investment sentiment seems to be further boosted after Hong Kong government said it had no plans to cut stamp duty on residential properties. Before the fourth-wave of virus infections, developers sold more than 4,100 new units in the last two months as hundreds of homebuyers lined up to visit show flats every weekend.

However, the boom in the primary market in October and November was largely thanks to developers' sale strategies, especially attractive mortgage plans, says Alva To Yu-hung, vice-president and head of consulting in Greater China at Cushman & Wakefield. That came after the government relaxed rules to allow buyers to borrow up to 80 percent on a new property worth HK$10 million in October last year.

"But that would not happen in the second-hand market. And that's why a lot of purchasing power shifted to the primary market which makes people feel that the market was very good,'' To says. The secondary market is hard hit by the pandemic. "You can still see in the newspapers every day that a lot of second-hand transactions are 5 or 6 percent below market price," he says.

Cushman & Wakefield expects a 10 percent drop in prices of major real estates for 2020, as the local unemployment rate remains at a 15-year high of 6.4 percent. To projects the prices will drop by another 5 percent in the first quarter next year, as a new wave of lay-offs begins after the government-fund wage subsidies ended.

The situation might stabilize in the second quarter, To says, but it is too early to forecast the second half, given uncertainties of an effective vaccine and the local economy.

However, there might be more upside potential for the mid-to-long-term property market due to the supply shortage, says Steven Wong Tsz-san, senior investment analyst at Harris Fraser.

The government slashed the ten-year housing supply target by 4.4 percent to 430,000 at the end of 2019. It has adjusted the split of public and private homes from 60:40 to 70:30 two years ago. The move could further slash private flat supply and support its price, Wong says.

In the latest Policy Address, the government said it will sell 4,700 flats under the Green Form Subsidized Home Ownership Scheme in phases next year. But whether it could deliver the plan remains uncertain especially given the disruption from Covid-19, according to Carie Li Ruofan, the economist of OCBC Wing Hang Bank. She expects residential property prices to grow by up to 5 percent in 2021, boosted by the scarce supply and the lower interest rate.

In the 2019 Long Term Housing Strategy Annual Progress Report, the government said it plans to provide around 301,000 public housing units and 129,000 private units in the coming decade.

Wong and his team estimate the basic annual demand for the private home is 21,400 per year, based on the number of DSE candidates and one-way permit holders, which might result in a shortfall of 85,000 for the next decade.

He projects Hong Kong home prices will rise by 10 percent in 2021 if a coronavirus vaccine could bring the local economy back to growth.

The Centa-City Leading Index, which tracks second-hand transaction prices compiled by Centaline Property Agency, climbed by almost 5 percent from March to July, when infections declined to single digit ahead of the third wave of Covid-19, which indicates the market could bounce back quickly if the economy reopens, he says.

Despite hopes of a fast recovery, there are also concerns about people selling homes to emigrate, due to intensified political tension in the city. More than 26,000 second-hand houses were available for sale on Centaline Property last month, surging by 44 percent from a year ago, the agent says.

But To does not think that will affect property price to a big extent. Those emigrating could be mainly young people, instead of property owners, he says. "There might be some people worried about the future of Hong Kong, but that will not be the majority," To adds.

While some leave, it does not mean they will sell properties, Wong says. Those who sold homes before the 1997 handover would not have benefited from the rally since then. And people may just change nationality and continue to live and invest in the city, he says.

In the worst scenario, Wong estimates that emigrants will increase by 3,000 per year, from an average of 9,248 between 2014 and 2018, based on the application number of Certificate of No Criminal Conviction. However, that will be offset by newcomers such as one-way permit holders and foreigners in a post-pandemic period, he says.

Source: The Standard

Early in March, following the dramatic oil price crash, fixed income markets showed signs of liquidity drying up and an unprecedented market crash followed. While we issued a warning in the early days of the crash, we see the recent dip as an opportunity for market entry. In order to support the market, global central banks have unanimously adopted dovish monetary policies, the excess liquidity could likely provide adequate downside protection.

As recession fears loomed and interest rates bordered zero, credit spreads have widened significantly. This could be an entry point to the market, as the liquidity crunch and the deleveraging activity sent bonds to undervalued levels. Amidst the uncertainty in economic growth outlook, fixed income exposure could improve risk adjusted returns in the portfolio. As monetary policies are expected to stay dovish throughout the economic recovery, corporations are also expected to receive sufficient support from local governments in order to save employment figures, the relative downside is minimised. The overall outlook for fixed income at this level should likely be positive over the year.

Fixed income products produced positive results in August. The Bloomberg Barclays Global Aggregate Bond Index rose 2.03%, US Investment Grade, Emerging Markets US dollar Bonds, and US High-yield bonds rose 3.14%, 0.25%, and 0.40% respectively. Global trade tensions intensified over the month with no apparent signs of slowing down, investors seek lower volatility amidst global uncertainty, increased demand for high quality instruments such as investment grade bonds continued to contribute to the indexes in August. Despite compressed yields, we remain optimistic about the prospects of the fixed income markets.

After Trump announced new tariffs on another 300 billion goods from China on August 1, China has finally retaliated and announced an additional 5-10% retaliatory tariffs on $75bn of US goods, and will resume 25% tariffs on US automobiles on 15 December. Later, Trump retaliated, increasing tariffs by 5% to 15%-30%, some of which will be implemented during the Chinese National Day, which has a strong political implication. With the end of the trade war nowhere in sight, our view of the economic outlook towards the end of the year is relatively negative. As shown by the worsening economic indicators around the globe, global corporate earnings is expected to be further pressured in the 2 remaining quarters and the equity market will likely face greater volatility. Holding fixed income as the core investment can allow investors to navigate the investment environment in such turbulent times and limit the downside risk of the investment portfolio.

After the Fed rate cuts in July, many central banks across the globe followed. Notable ones include Reserve Bank of New Zealand, which cut 50 points, exceeding market expectations; India by 35 points to a 9 year low; Thailand by 25 points, the first cut in 4 years, and Philippines by 25 points which was the second cut in 2019. Looking forward, we expect both the Fed and the ECB to slash the rates again in September, as the economic indicators showed more weakness in the past month. Deriving from the interest rate futures, we are looking at possibly around 2 cuts from Fed before the end of the year, while the ECB is expected to follow suit and cut at least 0.2% in total further into negative territory in 2019. With central banks potentially entering an interest rate cut cycle, increasing bond exposure in the portfolio can also better capture the capital appreciation.

Another pushing factor for bond prices is the high demand from various investors, especially European and Japanese investors. German bunds and Japanese government bonds are very safe investments which are considered risk free, but as money flow increased, quantitative easing policies deployed, investors becoming more risk adverse, and various central banks cutting interest rates to negative levels, it drove bond yields down to unreasonable levels. German bunds are all negative yielding, while Japanese government bond are almost all in the negative territory apart from the 20, 30 and 40Y bonds. As investors would still want to capture positive return, most of them turned their attention to the currently higher yielding US$ denominated bonds which are still relatively safe. Thus, the global yields are falling due to increasing demand driving prices up, and the situation is likely going to continue in the mid-term as there are no alternatives for the relevant parties to invest in. This could also partially explain the rally in global aggregate bonds, investment grade bonds and T-bills, which rose around 2-3.6% over the month despite the falling equity markets.

We also note that the EM bonds and high yield bonds performed much poorer than their investment grade partners, which was mainly driven by concerns over general economy, EM liquidity and debt situation. As Argentina’s elections ended with an unexpected result, Argentine stocks and currency crashed on the surprise, Argentine debt yield skyrocketed as concerns over possible sovereign default mounted. Global investors were concerned if there would be any ripple effects in the EM investing universe as there has been unhealthy levels of debt in several EM economies. As the global macroeconomic environment worsens, the outlook for the relatively risky high yield bonds and EM bonds are less positive.

As the markets expects the global central banks to potentially enter a rate cut cycle amidst trade woes and economic slowdown, the global investment landscape will likely be symbolized by a higher volatility and downside risk in the equity market. Investors should consider adjusting their portfolio and include more high quality debt to limit volatility while still getting positive returns. The balanced portfolio may improve the risk-adjusted return.

Written by Harris Fraser Investment Research Team

Harris Fraser Investment Research Team embraces a top-down analytical approach to deliver a satisfying risk-adjusted return to meet the objectives of our clients. We start with macro-level research on an individual country, region, or sector before doing technical analysis like cross-market money-flow and trends to identify investment opportunities.

"When the Fed said something to stabilize market sentiment, confidence returned," said Steven Wong, a senior investment analyst at Harris Fraser Group. "As long as central banks are happy to open the tap, all sorts of economic problems can be solved."

Wong added, however, that it remains to be seen whether markets have hit bottom yet.

Full article: Hong Kong shares rise on global monetary easing bets