HKMA Half-Yearly Monetary and Financial Stability Report (March 2023 Issue)

The Hong Kong Monetary Authority (HKMA) has published its latest semi-annual Monetary and Financial Stability Report. The report provides an update on macroeconomic issues such as price stability and economic outlook and summarizes some key risks in the near future as they may materialize in the financial market. Some of the key points are briefly noted below; for more detailed, comprehensive information, please refer to the enclosed report.
##### Situation during the past six months:
– From a global perspective, inflation remained high, causing many central banks to tighten their monetary policy, which in turn led to a slowdown of economic activity.
– Slowing global demand led to a reduction of Hong Kong exports and a decline of the gross domestic product GDP by over 3%.
– The Hong Kong equity market experienced a deep dive in September and October 2022 which was primarily caused by this interest rate hike and the fear of a global economic recession.
– Equity markets recovered thereafter due to the expectation that central banks will slow down their monetary tightening efforts.
– Concurrently, the bond market experienced exceptionally high yields.
– The local debt market remained strong, attracting many overseas investors. This particularly held true for the issuance of Hong Kong government green bonds.
– The residential real estate market experienced a decline in housing prices coupled with a record low in the number of housing sales and purchases. Particularly in the second half of 2022 did transactions in residential real estate decline sharply due to the high economic and inflation uncertainty.
– In view of the rising interest rates, the net income of banks increased notably. In fact, „the aggregate pre-tax operating profit of retail banks rose by 74.0% in
the second half of 2022 compared with the same period in 2021“.
– The labor market is slowly recovering from the pandemic and is currently standing at an unemployment rate of 3.3%.
##### Key risks (opportunities) in the short-term:
– The HKMA fears that the continued climate change may lead to an „abrupt repricing of related assets“.
– The HKMA also warns of the possibility of continuing high interest rates to counteract inflation which may lead to a further decrease of asset values in the stock market.
– Additionally, the HKMA notes that the geopolitical tensions could further increase global inflationary pressures, leading to corrections in asset prices.
– Also, the HKMA remarks the increasing risk of credit defaults and the further decline of real estate prices, as may uncertainties surrounding global interest rates and demand remain.
– On the plus side, the HKMA summarizes that the re-opening of the Mainland economy may lead to an increase in demand in local stock and to an increase in economic activity in Hong Kong.