〈Asian Post, Dec 10, 2016〉Exporters and real estate companies set to lose out while financial stocks will benefit following near-certain rise in US borrowing costs but 0.25pc boost seen affecting market prices rather than real earnings

Hong Kong's struggling businesses and markets are bracing for a rise in interest rates next week, the first time this year. Exporters and the property sector are set to lose out, while analysts believe that financial services firms will benefit.

"We expect banks and insurance companies to benefit as US Treasury yields rise. In the first instance, property may seem fine but as real interest rates rise, this sector will underperform quite sharply," said Sean Darby, the global equity strategy head at United States investment bank Jefferies. "Manufacturing companies may also lose their competitiveness as the US dollar rises."

However, with interest rates set to increase by just 0.25 percentage point, much of the effect of this rise will be felt in markets, rather than on businesses themselves. Nonetheless, with more rate rises expected to follow next year, how companies respond to this first increase will suggest which areas will do well next year, and which are facing more troubling times.We expect banks and insurance companies to benefit as US Treasury yields rise.Sean Darby global head of equity strategy at JefferiesHong Kong Trade Development Council's research director Nicholas Kwan Ka-ming said: "Hong Kong businesses are already dealing with an environment of sluggish growth and low consumption. A rise in interest rates will only add to their problems.

"However, an interest rate rise of 0.25 percentage point is not likely to have too much effect. If a company is in a position where such a small increase in its cost of borrowing will push it over the edge, then the company is hardly in a good position to begin with."

〈Asian Post, Dec 10, 2016〉Now that Hong Kong's polarising leader Leung Chun-ying has decided against running for a second term, will his friends and foes develop a fairer view of his legacy over the past four years?

Deemed either a "cunning wolf" or a loyal down-to-earth government servant, depending on one's perspective, to his friends he has done his best to tackle some social issues, especially the city's housing shortage. But to his foes, he has failed to foster cordial relations with them and bridge the social divide.

Lawmaker Martin Liao Cheung-kong, who was recently appointed to the Executive Council, appreciated his efforts in tackling some livelihood issues, especially the housing problem.

"I think his heart was in the right place and he has achieved quite a bit under very difficult circumstances in the past four years, particularly on poverty alleviation and elderly welfare that affect people's livelihood," he said.

"He has also worked hard to try to resolve the housing problem, which I think is one of the most important, if not the most important, social issue in Hong Kong."

Still, Liao expressed regret over his short-lived leadership, saying: "I think given a more harmonious political and social environment, he would have achieved more."

Starry Lee Wai-king, chairwoman of the pro-Beijing Democratic Alliance for the Betterment and Progress of Hong Kong (DAB), and Michael Tien Puk-sun of the New People's Party also praised his efforts in easing poverty and the housing shortage. "It's a great pity that he made this decision because of his family. It's a tough choice," Lee said.

But Tien admitted that Leung lost massive credit in handling the often confrontational relationship with his opponents.

Commonly called CY, Leung is often referred to by the unflattering nickname "689" - a derisive dig at the number of votes he received from the 1,200-member Election Committee, suggesting his lack of a firm mandate.

But it is undeniable that Leung has boosted housing supply and cracked down on property speculation to cool the market.

The latest progress report of his administration's work published in July estimated the total number of public housing flats generated while he was the city's leader stood at about 97,100.

〈Macau Times, Dec 9, 2016〉Property Off-plan sales of new residential projects are being launched one after another. Nova Grand from Shun Tak Group is the latest one, seeing the sale of 400 units completed in three days. Purchasing power is apparently strong and has been building up in the past few years, local property agents say, adding that the city needs much more supply.

Recent sales of new property projects have registered good performances due to the current supply not yet meeting total demand

As the MSAR comes out of its over-two-year economic adjustment phase, property developers have recently launched sales of their new projects, with nearly all receiving overwhelming responses. Managing Director of Ricacorp (Macau) Properties Limited, Jane Liu points out that current supply in the housing market has not yet satisfied demand.

Over the past weekend, Nova Grand, a new residential development of Hong Kong-listed conglomerate Shun Tak Group, located in central Taipa, opened the first batch of sales of some 400 two-room or three-room units of the 1,700 unit project. The units were sold out in three days.

Speaking to Business Daily, the managing director of Ricacorp said the majority of the buyers of the project were local residents.

“For our agency, around 70 per cent of the clients are local residents who aim to buy the units for self-use, or parents buying flats for their kids,” said the property agent. “The other 30 per cent are investors, who are mulling long term investment due to the Special Stamp Duty dampening the resale of property within two years.”

She added that many investors are also eyeing to make a profit from the units by leasing them out in the future.

Nestor Ng, President of Anzac Group, meanwhile, expressed that it was difficult to determine how many of the buyers of the new project were investors or buying for self-use.

〈China Post, Dec 9, 2016〉An imminent rise in interest rates in the United States next week could quicken the correction in Hong Kong home prices, which have bounced back to near record levels last month, according to industry experts.

Analysts estimated that a rate tightening could result in Hong Kong home prices falling 5 to 15 per cent for the next 12 months.

The International Monetary Fund (IMF) said on Wednesday that stretched property valuations mean Hong Kong's economy is vulnerable if interest rates rise faster than expected.

Centaline Property Agency expects residential prices to drop 5 per cent before the Lunar New Year, which will begin on January 28, 2017. Meanwhile, Citibank predicts a 15 per cent plunge in home prices next year.

"Home sales in the primary residential market will drop to 400 deals this month and further plunge to 100 in January," said Louis Chan Wing-kit, managing director at Centaline Property Agency's residential department. "Most developers will not release new projects this and next month as Christmas and Lunar New Year are approaching."

His forecast for new home sales means an 81 per cent drop from the 2,216 home sales in November, according to Land Registry data.

Chan said transactions in the secondary market could drop 60 per cent to about 1,500 deals from November, he said.

Denis Ma, head of research at JLL said the impact of higher interest rates is likely to affect the market later in the rate increase cycle given the difficult business environment in which banks find themselves.

"Higher interest rates and peak supply [of an estimated 25,000 units] is likely to see housing prices fall 5 to 10 per cent in 2018. Significant corrections in the city's housing market have historically correlated with major economic events. Without such a crisis, it will be difficult to see the market undergo a major correction," he said. We expect housing prices to remain broadly stable in 2017, said Ma.

In its annual assessment of the Asian financial hub, the IMF identified the main risks as rising interest rates and potential global market volatility, China-linked stress, and a possible downturn in the property market. "With stretched valuations, there is the risk of an accelerated price adjustment should interest rates rise faster than expected," the IMF report said.

〈BMI, Dec 8, 2016〉BMI View: The underperformance of Hong Kong real estate equities against the Hang Seng Index has further room to go. It is looking technically weak, and we believe that there is plenty of downside for the residential property market over the coming quarters. The real estate market is vulnerable to a further correction amid the government's stamp duty hike on November 4, extremely stretched valuations, rising interest rates, and an impending increase in housing supply.

The Hang Seng Property (HSP) Index has significantly underperformed the broader Hang Seng Index, following the Hong Kong government's decision to tighten property market measures on November 4, and we believe that the weakness in real estate equities has further room to go. Technically, the HSP index has broken support at around the 30,000 level, and it is likely that valuations will remain low given that the sector is vulnerable to a sharp correction. The HSP index price-to-book ratio is trading at 0.7x, and appears to be trending lower. Looking Technically Weak Hong Kong - Hang Seng Property Index Source: BMI, Bloomberg Policymakers Hike Stamp Duty Once Again

We believe that the November 4 measures will have a negative impact on property transactions, and also have the potential to cool house prices over the coming months. In an attempt to stem a further increase in real estate prices and reduce financial instability risks, the territory's policymakers announced that the stamp duty for non first-time homebuyers will be raised to 15.0% for individuals and corporate buyers, which will be up from 1.5% to 8.5%, depending on the transaction price.

For foreigners (including mainland Chinese), they will have to pay a 30.0% stamp duty (versus a range of 16.5% to 23.5% previously). Indeed, the territory's house prices resumed its uptrend from March, following a 12.6% decline in residential property prices from its peak in August 2015, as developers stepped in to offer discounts in order to lure buyers back into the market, which have heightened the concerns of policymakers. Still Trending Lower Hong Kong - Hang Seng Property Index P/B Ratio Source: BMI,

Bloomberg We are already seeing signs of property transaction volumes falling, following the policy changes. Data from Midland Realty showed that secondary market sales of 35 major estates tracked by the firm fell to a nine-month low of 37 deals in the week ending December 4 (versus 68 transactions at end-October). Meanwhile, the primary market for private residential property also appears to have peaked, falling to 2,216 units in November (versus a high of 3,480 in September). Property Measures Start To Bite Hong Kong – Secondary Market Sales Of 35 Major Estates Source: BMI, Bloomberg, Midland Realty Still In Bubble Trouble As Housing Affordability Worsens