Hong Kong providers to rebound as China reopens, however UBP says sector is coming from ‘fragile state of affairs’

Hong Kong’s service sector would be the a part of economic system that sees “the most important rebound” as borders reopen, UBP advised CNBC’s “Squawk Field Asia” on Thursday. 

Nevertheless, it warned that the sector is coming “from a really fragile state of affairs,” given its contraction in each quarter of 2022. 

“We won’t exclude the opportunity of additional insolvencies or bankruptcies … at the same time as issues do look to enhance within the months forward,” mentioned Carlos Casanova, UBP’s senior economist for Asia.

The most recent figures from the Hong Kong authorities additionally confirmed town’s economic system contracted by 4.2% in its fourth quarter, the fourth-straight quarter of declines. Actual GDP additionally shrank by 3.5% year-on-year.

“That contraction was a lot quicker than we had anticipated, our forecast was -2.8%,” Casanova added.

Nevertheless, the economist was optimistic that Hong Kong’s economic system ought to be “able to return to enlargement” in 2023. 

“We’re seeing indicators that there is been a sequential acceleration in January. In order that’s the excellent news,” mentioned Casanova.

Moreover the return of mainland Chinese language vacationers, Casanova mentioned “extra supportive fairness valuations” will assist enhance sentiment in Hong Kong. 

“You even have this expectation that the Fed will hike charges at a extra modest tempo in 2023 … that sooner or later you should have a pause,” he defined. 

“And that signifies that this pro-cyclical headwind that we have been experiencing in Hong Kong with tighter financial coverage … is not going to be such a giant drag within the 12 months forward.” 

Hong Kong’s property sector additionally skilled “subdued sentiment” final 12 months and, just like the providers sector, is “undoubtedly in a dangerous state of affairs as nicely,” mentioned Casanova. 

For instance, residence costs plunged to a five-year low in October as rates of interest pushed up borrowing prices.

“In reality, knowledge on the housing sector earlier this week confirmed that the variety of mortgages which can be underwater … is on the highest in 18 years,” Casanova mentioned. 

“Nevertheless it solely takes a really small variety of mainland expertise to maneuver into Hong Kong with a view to not less than put a flooring on that correction in housing costs.” 

Reversing the variety of mortgages which can be in damaging fairness will likely be “a vital side-effect” from the reopening of borders and restoration of home demand, he added.