The US Federal Reserve has kept interest rates on hold, but that was enough to spark a rally in major stock markets. American shares have hit new records; even the lacklustre Hong Kong and mainland Chinese markets got a boost. A cut this month was always going to be too optimistic; Fed officials expect three cuts this year, most likely in the second half. Fed chair Jerome Powell said inflation pressures had eased “substantially”, despite a recent improve up in US inflation data.
Markets took that as a dovish message. Japan and Europe have also gained. It helps that the Land of the Rising Sun has finally ended the era of negative interest rates with its first rise since 2007, putting behind it decades of deflation. The Nikkei has lately been on a roll.
Back in Hong Kong, all eyes are on the rate-sensitive property market, which has been in the doldrums since the pandemic, followed by the United States entering a rate-hike cycle in response to global inflation.
The anticipated monetary easing in the US comes as the Hong Kong government scrapped all property cooling measures. The Hong Kong Mortgage Authority also eased measures to allow homes valued at less than HK$30 million to be eligible for a 70 per cent mortgage, up from the previous 60 per cent.
HKMA urges borrower caution on interest-rate outlook
HKMA urges borrower caution on interest-rate outlook
Several major developers are already betting the local property market has “bottomed out” and is on the mend. Sales have gone up in recent weeks, and there are already signs that mainland Chinese buyers are returning to the local real estate market.
However, home prices have still to adjust upwards. The 5-plus per cent interest rate is still the highest in decades. Local banks follow the US Fed and are holding steady with their own lending rates.
Aspiring homeowners and those hoping to switch to bigger flats will have to balance current relatively depressed prices with higher mortgage rates, which will likely come down.
It is more important for them to consider their financial health, not just anticipate market moves.
Rate cuts in the second half of this year are likely to boost Hong Kong’s economy and home prices.
If rates fall in the US and the dollar weakens later in the year, capital flow will also reverse and return to Asia, including Hong Kong and the mainland.
For now, the US Fed seems to have signalled a well-laid plan to ease policy that appeals to markets without big surprises. But a lot can happen to the global economy and international politics between now and that first anticipated rate cut.
It always pays for investors and buyers, in Hong Kong and elsewhere, to be prudent.
