LI, Tao @ Hong Kong

Hong Kong’s economic growth is expected to accelerate to 3.1 percent in the second quarter from 2.3 percent in the first quarter, supported by a rebound in external demand, the University of Hong Kong economists forecasted on Monday.

The 2.3 percent GDP growth estimates for the previous three months was slightly higher than its previous projection on Jan 4 when the university forecasted a 2.2 percent GDP growth for the period, according to the university’s quarterly Hong Kong Macroeconomic Forecast.

For the first half of this year, Hong Kong’s real GDP is projected to grow by 2.7 percent, as compared with the 6.5 percent growth recorded for the same period last year, according to the forecast of APEC Studies Programme at the Hong Kong Institute of Economics and Business Strategy (HKIEBS) of the university.

The distinct slowdown can be attributed to the contraction in external demand due to the European sovereign debt crisis, said Alan Siu, executive director of the HKIEBS at the HKU.

According to the forecast, the city’s common income growth will assist private consumption spending to continue expanding this year, although, at a slower pace, with growth rate forecast to expand 4.7 percent in the first quarter and decelerating to 3.7 percent in the following three months due to a slowing economy.

Retail sales volume are also expected to grow by 8.9 percent and 7.9 percent for the first two quarters of 2012, supported by robust local demand and strong visitor arrivals growth, compared with 10.1 percent growth in January.

The job market is projected to be stable with the unemployment rate forecast to be 3.4 percent in both the first and second quarter of 2012.

Inflation pressure is expected to ease further, and the headline consumer inflation rate is forecast to moderate to 4.2 percent in the current quarter, down from the estimated 5.1 percent in the last quarter, according to the report. In 2011, the jobless rate and headline CPI stood at 3.3 percent and 5.3 percent respectively throughout the year.

“But the resolution of sovereign debt in Greece, continued economic recovery in the US, robust growth on the mainland, on-going infrastructural projects and the low interest rates environment will provide support for continued economic growth in the current year in Hong Kong,” Siu indicated during a media briefing on Monday.

He expected the total exports to turn around and grow by 4.3 percent in current quarter after contracting by 2.4 percent in the first three months this year.

Siu said he also lifted Hong Kong’s full year GDP growth forecast to 3 to 4 percent for 2012, from the 2 to 3 percent estimation made earlier.

A Hang Seng Bank report released in mid-March said the city’s economy may contract in the first three months of 2012 as domestic demand showed signs of cooling and external trade activities slowed.

“We anticipate headline growth to decelerate to a year-on-year rate of below 2 percent and a quarter-on-quarter contraction seems inevitable,” economists Ryan Lam and Joanne Yim from the bank wrote. “With external demand weakening and on-going uncertainties arising from the euro area debt crisis, we expect a modest pullback in job creation and the unemployment rate to rise modestly as the year progresses.”

For the year as a whole, Hang Seng Bank nevertheless maintained its GDP forecast of 3 percent, compared with the forecast of 1 percent and 3 percent growth made by the government earlier.

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Hong Kong’s property market is expected to remain stable in the next few years despite pledges by the city’s Chief Executive-Elect Leung Chun-ying to boost home supply when he takes up the top post.

Though Leung proposed during his election campaign to build more low-income housing and boost land supply to meet the demand, these proposals are de facto the continuance of current government policies, said Banny Lam, associate director and economist at CCB International Securities Ltd. He ruled out possibilities that the city’s home prices will tumble in the future.

“In the campaign, Leung promised a healthy development of the city’s property market, and as a property veteran, he wouldn’t favor slumping property prices,” Lam told China Daily.

“Hong Kong’s home prices surged over the years due to an imbalanced supply and demand. Despite the new chief executive’s pledge to boost land and home supplies during his office, the pace is expected to be modest given the construction period as well as public interest,” said Lam.

Housing is the livelihood issue that Hong Kong people are concerned most, which is also the foundation of a stable society, Leung said during the elections.

“Hong Kong is not short of land banks, but lacks long-term planning,” he said.

According to his housing policies, the former property surveyor also vows to increase land supply through various methods including development of new towns, redevelopment of old districts, as well as conversion of vacant sites into residential use.

Together with Leung’s suggestion of resuming the supply of 5,000 apartments per year under the home ownership scheme (HOS), these policies will “paint a picture of sufficient housing supply and reduce the possibility of a housing shortage during his five-year term”, a UOB Kay Hian research report said on Monday.

“The market’s immediate reaction to Leung’s win will be to cap Hong Kong property price,” Allen Wong noted in the report.

As Leung suggested selecting a few new sites suitable for middle-class and the next government might provide the middle class with low interest-rate mortgage for home purchase, these policies may convey a message to buyers that it is better to defer home purchases as there may be more choices at lower prices later, the report added.

However, Eddie Hui, a professor at Department of Building and Real Estate of Polytechnic University does not see the market encountering major transformations despite Leung’s ambitions in providing people with better living conditions.

“An enhanced effort in building public housing and residential homes brought very positive signals to the market but there are also more obstacles awaiting the new chief executive to tackle.”

“Leung also proposed to only sell homes to Hong Kong residents when the market becomes over-heated, but without any precedent, the promise still lacks consensus particularly to carry out in an international metropolis like Hong Kong,” said Hui.

A Citigroup report published on Monday indicated that the bank maintained its view that general property prices will not fall substantially on the simple theme of Leung taking office. “His detailed proposed land and housing policies do not differ significantly from what the current administration is pursuing,” wrote Adrienne Lui, an analyst from the bank.

Patrick Chow, Ricacorp Properties head of research, believes the city’s residential market in the long-run is still on an upward trend as property is still one of the most favorable tools to hedge against inflation.

http://www.chinadailyapac.com/article/hong-kongs-property-market-remain-stable

As sales growth slow down amid heightened competition and a weaker retail market, mainland-based shoemakers are under pressure to reduce inventories via discount sales, said Daphne International Ltd, a major shoemaker.

Daphne said on Tuesday that it will enhance its promotional activities this year after the group posted a 38.7 percent increase in underlying profit during the past year.

The underlying profit surged to HK$933.1 million for the full year ended Dec 31, 2011 from HK$672.8 a year earlier, according to a statement to the Hong Kong Stock Exchange on Tuesday. Revenue rose 29.5 percent to HK$8.58 billion over the period.

Chairman of Daphne, Eddie Chen, said the group expects its same store sales to improve by around 12 percent this year, compared with the 21 percent growth recorded last year, due to “the lack of consumer confidence amid gloomy economic environment, the fierce competition, as well as the stocked-up inventory over the review period.”

“Amid a slowing consumption environment, with new brands continuing to emerge in the market, pressure on sales is mounting and the discount sales among the shoe retailers will also escalate this year,” Chen said during a media briefing in Hong Kong on Tuesday.

Daphne opened 966 new shops on the mainland last year, including 700 under its core brand “Daphne”. Its capital expenditure surged 40 percent to HK$393.7 million last year along with fast business expansion.

The group, nevertheless, will add 700 more directly-managed stores for core brands this year to seize a bigger market share. Capital expenditure this year is expected to reach HK$500 million in 2012, according to its chief financial officer Jerry Lin.

Without disclosing the exact amount of the inventory it holds currently, Daphne’s chairman Chen noted that the group’s inventory level is relatively high at the moment. Daphne held HK$1.8 billion cash as at the end of 2011, down 12.8 percent from HK$2.06 billion a year earlier.

Phoebe Wong, an analyst from BOCOM Securities, said he expected Daphne’s growth will continue coupled with its ongoing effective sales and operational revamp exercise.

“The first quarter sales momentum in 2012 continues to be encouraging, with same store sales growth on track versus its full year 10 to 15 percent guidance,” said Wong, who added that Daphne may achieve a 25 percent net profit growth this year.

However, retail sales on the mainland rose 15.8 percent year-on-year to 2.9 trillion yuan in the first two months of this year, the National Bureau of Statistics announced on March 9.

Despite a spending spree during the Lunar New Year in January, the growth was 3.3 percentage points lower than December’s level, which was also far below market expectations of 19 percent, according to Xinhua News Agency.

Belle International Holdings Ltd, China’s biggest shoe retailer announced in January that its same store sales increased 8.2 percent in the three months ended December, far slower compared with the 18.5 percent growth in the previous three months.

“The growth prospect for 2012 in general is to be clouded by macro uncertainties and unfavorable base effect,” said Carrie Chan, an analyst with ICBC International Research Ltd in a report in early March. The bank anticipated retail business growth in the first six months of this year to be slower, but predicted an acceleration in the second half, indicating that the footwear and apparel counters are still its top picks.

Share of Daphne declined by HK$0.10 or 0.73 percent to close at HK$13.54 on its Hong Kong trading on Tuesday, compared with the 1.08 percent loss of the city’s benchmark Hang Seng Index.

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Hong Kong banks are in good shape to weather a cyclical downturn, despite rising risks, rating agency Fitch said on Thursday in a report after conducting stress tests on the city’s lenders.

The report said the city’s banks are in a strong position to absorb potential losses stemming from a global economic slowdown, including the expected slower economic growth on the mainland, but warned that impairment charges are likely to rise from current low and unsustainable levels.

“Hong Kong banks are well-positioned to withstand the headwinds despite conservative loss assumptions to reflect rising risks from an increasing portion of banks’ exposure directly and indirectly related to the mainland,” said Sabine Bauer, director in Fitch’s financial institutions team.

And the likely downturn in the future should “be different from previous hard times during 1997 Asian crisis, SARS in 2003 and the global financial crisis from 2007, and could be more pronounced — due to banks’ expansion into the mainland and increased links between the two economies,” according to the rating agency, which adopted two scenarios incorporating a mild and a severe economic downturn on the mainland in the stress tests.

If the rapid mainland economic growth slowed at a milder pace, which is more likely to take place in reality according to Fitch, Hong Kong banks would only experience a moderately deteriorating operating environment along with a weaker domestic property sector and moderating global trade, the report said.

The rating agency said that however, a slower and healthy growth could still be expected.

In the rare situation that the mainland economy deteriorated severely, which is also not the rating agency’s base case, it may lead to some negative rating actions in isolated cases. Under this severe assumption, Fitch estimated average impairment charges of 4.3 percent of exposures among these lenders over a three-year period, ranging from 3.5 percent to 5.1 percent for individual banks.

Fitch nevertheless considered minority stakes in mainland financial institutions held by some major local banks including HSBC and Hang Seng Bank a “concentration risk”, claiming that the value of these stakes could decline by up to 65 percent according to its stress tests.

Future losses on corporate loans could reach 6 percent over a three-year horizon, which is likely to exceed most banks’ internal assumptions, said the rating agency.

Hong Kong lenders have been undertaking more mainland-related credits since the city became the mainland’s center for offshore yuan business. Since the central government tightened its monetary policies in 2010, accessing loans became difficult on the mainland prompting mainland corporations to look to Hong Kong for easier and cheaper financing.

The exposure of Hong Kong’s banking sector to non-bank entities on the mainland expanded rapidly in recent years, with the total amount of exposure reaching HK$2.20 trillion in the third quarter of 2011, more than doubled the HK$973 billion during same period in 2009.

According to an earlier study released in October, Fitch has warned that Hong Kong banks may face negative rating action as higher lending to mainland companies made their loan portfolios more risky.

It forecasted that exposure to mainland could rise to about 35 percent of Hong Kong banking assets by 2012 from 24 percent at the end of June last year.

http://www.chinadailyapac.com/article/banks-resilient-enough-weather-downturn

Longfor Properties Co Ltd, one of the major property developers on the mainland, said it has no plans to raise funds via selling stocks or bonds, citing its strong financial strength. The assurance comes amid speculations that developers are on the verge of a fundraising spree amid tight liquidity.

“We have not planned, and it is not necessary for us to issue a share placement at the moment,” Wu Yajun, chairman of the group, who is also the richest woman on the mainland, responded at the group’s annual result press conference in Hong Kong on Monday.

Longfor holds 14.53 billion yuan cash in hand as at the end of 2011, while the net gearing ratio has decreased to 43.02 percent from 56.56 percent recorded in the middle of 2011, the developer said.

Its core net profit rose 74.9 percent to 4.50 billion yuan for the 12 months ended Dec 31, 2011 from 2.57 billion a year ago, according to a company statement to the city’s stock exchange on Monday. Revenue from property development rose by 60.1 percent to 23.38 billion yuan from 14.60 billion yuan for the same period last year.

“Longfor is one of the few mainland property developers with a solid financial position amid (the) current gloomy atmosphere,” Kenny Tang, executive director from AMTD Financial Planning Ltd, told China Daily. “Since its home sales are at a relatively fast pace, I do not see the group in real need to raise capital at the moment,” Tang added.

As credit tightening is not likely to come to an end in the near term, the market suspects more mainland property developers to follow suit in share sales after Country Garden Holdings Co raised HK$3.1 billion from a share placement in late February.

In 2011, Longfor secured bond financing and syndicate loans of $750 million and $250 million respectively. Average debt cost for the group stood at 6.4 percent, according to its chief financial officer Wei Huaning.

Wei added that the group has also placed high priority on the collection of sales proceeds, with the collection rate more than 90 percent throughout the year which also outperformed the industry average.

Since the Central Government curbed home sales through lifting down-payment threshold and banned repeat home purchases, transaction volumes on the mainland slumped notably last year with home prices declining at a slower pace.

In October, Longfor held promotions for three housing projects in first-tier cities, including Shanghai and Hangzhou, to help push sales. The developer is also among other peers which have cut prices on some housing projects to stimulate sales.

The expected buildup of trust refinancing pressure in 2012 and 2013 may compel some mainland developers to accelerate sales activity at lower prices, possibly triggering profit taking in the short-term, according to an email report sent by CCB International on Monday.

“Cash received from property presales seems to be the only way to cope with the burden of trust refinancing,” Edison Bian from CCBI wrote in the report.

“We believe the offloading of property by developers (to) lower prices is just around the corner and, as a result, we expect aggressive sales activity and a sharp rise in transaction volumes.”

Shares of Longfor declined HK$0.07 or 2.11 percent to close at HK$3.24 on its Hong Kong trading on Monday, compared with the 0.23 percent gain of the city’s benchmark Hang Seng Index.

http://www.chinadailyapac.com/article/cash-flushed-longfor-properties-says-it-has-no-fund-raising-plans