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Thursday, December 06, 2018, 11:16
Outcome of trade talks best HK could hope for
By Peter Liang
Thursday, December 06, 2018, 11:16 By Peter Liang

The outcome of the widely watched meeting between President Xi Jinping and his US counterpart Donald Trump at the G20 summit is the best Hong Kong business people and investors could hope for in the trade war between the city’s largest markets.

To be sure, the thorny economic issues that pit the two largest economies against each other are far from resolved. But the 90-day truce is giving Hong Kong stock and property markets much needed relief from the price-eroding tension that has built up in past several months.

After the initial euphoria, the stock market is expected to remain volatile while investors question whether the stocks of mainland enterprises, many of which are listed in Hong Kong, are oversold when investors was shaken by the constant bombardment of combative rhetoric from both sides.

The upside potential has been greatly boosted by the outcome of the meeting which shows that both sides are willing to talk about those issues that were deemed non-negotiable before

Undoubtedly, many investors who had chosen to stay on the sideline would be tempted to return to pick up what they may consider as bargains. That’s not entirely risk free. If they believe that there will be all quiet on the trade front in the next three months, they could be setting themselves up for some nasty surprises.

Nobody expects the negotiations between Washington and Beijing are going to be smooth. When things don’t go the way Trump wants it to, he will most likely make his displeasure known on Twitter in ways that could once again rock Hong Kong and mainland investors’ confidence and send share prices down.

Long-term investors may find this a good time to buy stocks, especially the much battered Hong Kong-listed H shares of major mainland enterprises in finance, technology and healthcare. The upside potential has been greatly boosted by the outcome of the meeting which shows that both sides are willing to talk about those issues that were deemed non-negotiable before, raising the chance of an agreement no matter how remote that may seem at this point.

The trade dispute so far has had only indirect influence on the property market which, according to all indications, is heading toward a down cycle for many unrelated reasons. The latest official survey confirms market expectations of a fall in home prices in all market segments. Home prices have continued to fall since August.

Sluggish sales of new apartments in recent months despite aggressive price discounts show that rising interest rates and growing concerns about the worsening economic outlook have combined to depress demand by prospective homebuyers. But real estate agents who have taken a hard hit recently are beginning to see a glimmer of hope.

The increase in borrowing cost is widely accepted as an irreversible trend in coming months. But the latest statements and public speeches of several US Federal Reserve officials have indicated a more-moderate-than-earlier-expected increase in interest rates in 2019.

Slow and mild increases in borrowing costs will allow the Hong Kong property market bubble to deflate gradually, giving plenty of time for homeowners and lenders to adjust to price declines without the threat of a meltdown.

Market confidence is now seen to be further boosted by the easing of trade tension that posed a real threat to economic growth, hurting jobs and incomes of many families who are already hard pressed by the burden of their heavy mortgages.

The price exacted by a full-blown trade war on Hong Kong’s externally oriented economy is estimated to be high. Not only would it hit the export sector which consists mainly of re-exports to and from the Chinese mainland, but also depress the demand of financial and trade services in which Hong Kong excels.

After taking into consideration the possible impact of the trade dispute, economists and analysts revised their growth projections down to 3 percent or less in 2019. These projections did not take into account the escalation of the trade war which has been averted for at least three months.

It is hard to predict what’s going to happen after that. But the willingness of both parties to talk is widely seen among Hong Kong business people and investors as a positive factor that bolsters confidence at a time of financial and economic uncertainties.

The author is a current affairs commentator.

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