China/Hong Kong SAR - Weak asset market with manageable impact on liquidity condition


50bps RRR cut in the next couple of weeks.
Samuel Tse21 Sep 2021
    Photo credit: Unsplash Photo


    While China was on holiday, yesterday’s market action saw contagion spilling from China tech sector to Macau SAR gaming and Hong Kong SAR property industries. Hang Seng Index fell 822 points in the past trading day. Amongst all, the Hang Seng Property Index fell the most by 1,947 points (7%) to its 52-week due to rumours of potential government intervention to resolve the problem of unaffordable housing market.

     

    Impact on capital flows through Stock Connect remains uncertain due to 3-day long Mid-Autumn Festival Holiday in the mainland. HKD rates remain largely calm amid flush liquidity. Aggregate Balance, i.e. the interbank HKD liquidity, stayed at HKD447bn, compared to the pre-COVID period of HKD54bn. 1-M HIBOR stayed low at 0.06%. Overnight HIBOR, an indicator of market volatility, anchored steadily at 0.04%. HKD slightly weakened from 7.77 per USD in early-Sep to 7.78 of late, but was far from the weak-end of the USD peg (7.85). Liquidity condition was largely stable.  

     

    The worsening situation of Evergrande continues to haunt the market. The stock price plunged 84.7% YTD. Reportedly, 75% haircut is likely for bond holders. Evergrande has already announced a 28% price cut for new homes, 46% cut for unsold retail shops, and 52% cut for car parks. Potential defaults have already spilled over to other China property companies with weak financials. Share price of Sinic Holdings dropped by 87.0% yesterday. In response, the PBoC injected USD14bn of short-term cash via reverse repo into the financial system last Friday. We expect another 50bps cut of RRR to be announced in the next couple of weeks. This could allow developers with relatively healthier financials to acquire projects of Evergrande.

     

    Samuel Tse 謝家曦

    Economist - China & Hong Kong 經濟學家 - 中國及香港
    samueltse@dbs.com



    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.
    The information herein is published by DBS Bank Ltd. It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

    DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong SAR Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    The information set out in this website ("Information") is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. This Information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. This Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.