LONG-TERM VIEW NEEDED DURING UNCERTAIN 2016

rate‘When China sneezes, the world catches a cold’ – the unfolding of recent events has proven that true; but pockets of opportunities still exist if you know where to look.

Text by Jan Yong

2016 started on panic mode with a Chinese stock market crash followed by falls in global stock markets, wiping off an estimated USD2.6 trillion from global markets in a matter of four days. Such is China’s impact on world markets that whatever it does is being watched closely and analysed to death. After all, China has been the engine of the world’s growth for the last 10 years. A slowing economy in China means less money for everyone, hence less consumption especially high end and big ticket items including real estate. An analyst has even pointed out the crash could spell the end of a huge property-based debt-fuelled boom in China.

That aside, at the time of writing, the markets have stabilised slightly after China strengthened its currency, alleviating fears of further Yuan devaluations. A Yuan devaluation would trigger competitive devaluations among its trading partners; it is a good and bad thing. Good for China’s exports which will be more competitive but bad for its asset values. It may trigger more outflows of money from China. Its trading partners would similarly embark on competitive devaluations to compete with China, hence lower asset values across the board all over the region.

US interest rate hike

rate2Amid more US interest rate hikes in 2016, Hong Kong and Singapore, both economies strongly tied to the USD, will see heightened interest rates as well which will result in less demand for property. In Hong Kong’s case, however, strong take-up from China especially in the office segment will counterbalance the lesser demand from locals. Apart from more money flowing back to the US, thus strengthening the USD, an almighty US will eventually find that its exports become less competitive, hence triggering a slowdown there as well.

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