A stock guide for Hong Kong’s policy address as home sales sink
HONG Kong Chief Executive John Lee may unveil measures boosting property sales and the stock market at his annual policy address on Wednesday (Oct 25), as he seeks to reinvigorate the faltering financial hub.
Analysts expect Lee to cut levies on home sales after prices plunged almost a fifth from a 2021 peak. The former security chief may also reduce stamp duties on stock trading, and do more to attract talent after strict Covid policies spurred a flight.
The Chinese financial centre is caught between China’s slowing economy and rising global rates, leading to the end of a two-decade bull run in its crucial housing market. The benchmark Hang Seng Index, down nearly 16 per cent in the last six months, is among the worst performers globally while economists have slashed growth forecasts.
“More government-led measures may boost the local consumption,” said Steven Leung, an executive director at UOB Kay Hian in Hong Kong. “Attracting the return of overseas liquidity” will also help the real economy, he added.
Here are some key areas to watch from the speech:
Home purchases
There are wide expectations for the government to further ease property market curbs that were first introduced after interest rates plunged during the great financial crisis. As mortgage rates climbed, developers had to offer deep discounts to lure buyers. Morgan Stanley says prices may decline into 2024.
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There is currently a 30 per cent stamp duty on buyers who do not have permanent residency and a 15 per cent levy on residents who already own a home.
While the market has priced in a cut to the duties, a larger-than-expected reduction may still “see a strong rebound in secondary residential transaction in the near term”, according to Sonija Li, head of retail research at MIB Securities Hong Kong, who expects one of the levies to be halved.
That could benefit developers such as Sun Hung Kai Properties, Sino Land, and CK Asset Holdings.
Stock trading
There is mounting pressure for Hong Kong to follow China’s lead in cutting stamp duty on equity trades in August. Traders have long blamed high transaction costs for sapping liquidity for the US$4.7 trillion stock market.
The city raised the levy to 0.13 per cent from 0.10 per cent in 2021, which had sent the shares of its exchange operator down by the most in five years then. Citigroup estimates that every one basis point reduction will lead to a 2 per cent to 3 per cent reduction in costs.
Lee may also lower earnings and capital requirements for Initial public offerings while reducing the size of transactions to enhance high-frequency trade.
“Initial public offerings in Hong Kong that used to rank on top compared to other exchanges in the world is now behind Indonesia,” said Dickie Wong, director of research at Kingston Securities, adding that the market also needs structural reforms to stay robust.
Hong Kong Exchanges & Clearing, which has seen a 15 per cent decline in its stock this year, will be a key beneficiary of efforts to increase trading. Brokerages such as Bright Smart Securities & Commodities Group, Shenwan Hongyuan HK, First Shanghai Investments, and Get Nice Financial Group may also get a short-term lift.
Attracting talent
The government may resume its talent attraction programme, the Capital Investment Entrant Scheme, to stem a brain drain. A plan to encourage more overseas workers “could mean more capital flowing into equities, debt, certificate deposits and collective investment schemes”, said Sharnie Wong, a Bloomberg Intelligence analyst.
While the impact will depend on the number of applicants and on their choice of investment instruments, firms including Hang Seng Bank and BOC Hong Kong (Holdings) may benefit from an increase in wealth management business and assets under management.
New capital inflows may also boost the property market and local consumption, although such impact “will not be significant”, based on past experience, according to UOB’s Leung.
Other measures that may boost the city’s labour force include possible cash handouts. Lee may introduce support for working parents, including adding childcare services and providing cash allowances, according to a Sing Tao report. To encourage childbirth, he may also announce a handout of HK$20,000 (S$3,494) for each newborn, HK01 reported. That may raise interest in fertility clinic service providers as well as baby care product makers. BLOOMBERG
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