Text: Lau Man-shum
Translation: Chapman Chen
美國聯儲局主席耶倫 （圖片來源）
The United States will almost certainly raise interest rates within this year, just that it is not yet certain whether it will take place in the first half or the second half of this year. Nonetheless, my view is that when the United States and even Hong Kong raise interest rates, Hong Kong’s property may still continue to go up. The reason is very simple: everything is already within the investors’ expectation.
The usual concept is that with a rise in interest rates, the property market and the stock market are supposed to fall. But while US rise in interest rates has been talked about for a couple of years, it has not yet been realized. Moreover, the news is within the market’s expectation. When it is formally put into practice, all bad news will have been out for quite a while and a rise in interest rates is no longer something out of expectation.
The style of the Federal Reserve Board now is very different from that of the era with Greenspan as the Chair. Back in early 1994, when the market was totally unprepared, the Federal Reserve Board as headed by Greenspan suddenly announced rise in interest rates, and the immediate response of American and Hong Kong stock markets and property markets was a drastic fall. Subsequently, for about a year and a half, Hong Kong’s property market was on the decline.
Generally speaking, it is almost a mainstream view that in case of a war, stock markets and property markets will fall. In August 1990, Iraq suddenly invaded Kuwait and the Middle East was filled with omens of war, followed promptly by a fall in Hong Kong stock market and property market. Subsequently, most investors took a wait-and-see attitude. Because the Allied Force headed by the United States, sided with Kuwait and planned a counter-attack on Iraq.
At that time, not only the stock market of Hong Kong was stagnant, but the stock markets all over the world also lingered at low levels. It was because stock market players were aware that the Middle East War between the Allied Force and Iraq would break out any minute. Once the war starts, the local stock and property markets will be doomed, they thought. So most investors shunned the market.
Unexpectedly, the Allied Force kept delaying the attack on Iraq. Consequently, from August through December that year, the situation became deadlocked. Most investors of Hong Kong and all over the world waited to see how the situation developed.
It was not until January 1991 that the Allied Force finally began to bombard Iraq. The response of the Hong Kong market and other markets in the world was actually a large-scale rise in general. The understanding then was: The worst news of war has appeared for a long time, but the situation on the battlefield now is overwhelming victory on the part of the Allied Force and overall defeat on the part of Iraq. Since all the bad news has come out, and there is a time gap of a few months, all negative influences are taken into account. As a result, most major stock markets rose significantly, and both the stock market and the property market of Hong Kong bloomed.
When the Tiananmen Square Massacre took place in 1989, many people suddenly became concerned with the health of Deng Xiaoping, the leader of China. Many people tried to estimate what kind of situation would emerge in Hong Kong, once Deng was gone. Some people estimate a fall of 500 points, some 700, some1000. No consensus at all.
The reason why those people expected the market to fall when Deng passed away was because Deng had not arranged whom to succeed him. But after the Tiananmen Square Massacre, Deng continued to enjoy good health and grasp power over major issues.
Between 1993 and 1994, an alternative theory circulated in the stock market, that is that once Deng is gone, the Hang Seng Index will be up a few points. It was because the market thought that as Deng had arranged whom to succeed him, no chaos would arise in the political arena of China. When the news of Deng’s demise was announced on 19 February 1997, the Hang Seng Index was up 300.5 points, i.e., 2.32 percent, since the market was well prepared for Deng’s demise.
Similarly, the talk about US rise in interest rates has been brewing for a couple of years, and all negative emotions are already digested. Moreover Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, is a dove as far as increase in interest rates is concerned. So even if the United States really raises interest rates this year, the increase will not be so quick and so sharp! And it is not groundless to expect the local stock and property markets to continue to rise.
