Glimmers of Hope

April 14, 2009

In a marketplace that is swamped by bad news every day, some recent economic data released in the US and China is re-igniting hopes of a recovery. While unemployment rates see no sign of abating and international import / export trades continue to record worst figures for decades, liquidity in the financial markets has eased on the back of strong injection of capital from the governments, particularly in the US and China.

In the US, Goldman Sachs surprised market last week with a 20% YOY increase of its quarterly profit, which is also a turn-around from its first quarterly loss in a decade. Only yesterday, it was contemplating a rights issue for partial repayment of the US government bailout fund. A week earlier, Wells Fargo, another major US bank, said it might report substantially higher profits than market expectations.

In China, liquidity in credit market was substantially enhanced in the first quarter, with lending exceeding all prior expectations. Increased liquidity has spurred investment activities, which is best reflected in the sudden surge of stock market in Shanghai as well as in Hong Kong. Bullish sentiment permeated the investment arena, and primary property market in first-tier cities like Shanghai, Beijing and Shenzhen woke up, with many new buyers swamping the sales offices.

In Hong Kong, property sales picked up after Chinese New Year in both primary and secondary markets, though not without price reductions. It is already a better-than-expected result, as the price war was somehow predicted (“Price War”, Market Watch, February 14, 2009). In March alone, luxury property sales on Hong Kong Island had surpassed October 2008 to February 2009 combined. The increased sales had largely been spurred by the relaxed mortgage policies when banks had started a new round of mortgage war for fear of losing market share and business opportunities due to prolonged credit freeze in the proceeding months.

While it’s still too early to say the economic woes are over, I believe we are not too far from the bottom if not already there.

By Koh Keng-shing