Hong Kong's Property Cycle / charts, comments

[drbubb]

CHART & COMMENTS- Relating to the Cycle in HK Property Prices

==============

From 3.Apr.2009 Conference Call ... update

 

I think these graphs prove my point...

The LT graph really goes out of phase/sync towards the end.. I'm guessing the 18yr cycle probably fits this better than all the other combinations.. but if you play like that, you're bound to find a pattern.

 

SURE. They wobble, stretch and contract somewhat.

The point of the cycle is that it provides a narrative, or storyline, and if the facts fit in with the storyline, then you have an idea of what lies ahead.

 

In the UK and the US, the 18 year cycle worked well, it nailed the top- particularly if you used it together with other indicators, like Builder shares. Here are two YouTube videos which I have made which illustrate the point.

 

 

1/ Introduction to Harrison's 18 year cycle:

::

 

2/ Are the UK Builders forecasting a Property Crash, starting in 2008:

::

 

Let's apply these tools to the HK market. Here's how I do that:

(The last 18 year Cycle peak was in 1997, after a 13-14 year rise): raw chart

There was a drop into 2001 and 2003, and since then... update

 

+ We saw a major peak in Hong Kong in 1997

+ The next Low should have been 2001, there was an "attempted low" then, but

+ SARS brought a lower low in 2003

+ 7 years up from "natural low" of 2001, suggests a mid-cycle high in 2008

+ After that, you would expect "several months" of correction, coming along with a recession

+ The 4 years "explosive phase" lies ahead, into 2012, and then maybe:

+ 3 years of the Winners Curse phase (possibly 2012-15), when the banks "throw away the rule book"

 

The 18 year pattern is so pronounced, that it seems to have over-ridden timing of the 2003 SARS low.

My big fear is that disruptions in the US, like a depression, or a surge in interest rates in an inflationary

episode might overide the cyclical narrative that I have described above.

 

Why do I think this current correction in HK is just a "mid-cycle correction" expected to last a few months?

 

- We did not see the signs of excess (in overbuilding, over-finance, and speculation) that are typical at peaks

- I read somewhere that something like 50% of HK own their properties outright- without debt. You would

.. expect them to be stretched and over-borrowed at an important peak (as there were in 1997)

- The HK builder/developers have already shown a substantial correction in their share prices

 

Henderson Land (HK:12) ... update : http://tinyurl.com/5aclqn

..HSNP

... showing a pattern similar to the previous mid-cycle correction, before the run-up into 1997

 

HK:12, updated to early April 2009 ... update

 

I find it interesting that Chinese stock indices are now nicely based, and ready for a possible move up.

 

The China stock etf (FXI) ... update: http://tinyurl.com/ChinaFXI : mid-2008

 

HK Stock Index etf (EWH) - updated late Sept.2008 ... update

 

(I will copy this to the GEI property thread, to continue the discussion there. Those here who are

unfamiliar with this way of thinking, may find it difficult to accept this way of thinking, but I can

assure you that it has been successfully applied by Fred Harrison and others.)

 

Originally posted: http://caribbeancoast.org/forum/index.php/...56.html#msg4556

 

HIBOR

: LINK

 

Here's US$Libor - remember the "upside-down" way this contract is quoted: 100 - the Libor interest rate (1 mo. libor??):

 

$LIBOR ... update

 

CSI-300 Stock Prices ... http://tinyurl.com/CSI-300

 

The CSI 300 Index is a cap-weighted index. The index tracks the daily price performance of the 300 most representative A-share stocks listed on the Shanghaior Shenzhen Stock Exchanges. The index was launched on 4/08/2005 and has a base of 1000 on 12/31/2004. Historical pricing is not yet available. Index trade volume on Q is scaled down by a factor of 1000

 

Looking at the chart for Shanghai/ CSI-300 ... update

up to 20.2.2009

 

Property Bellwether for Chinese property?

China Overseas L&I (HK:688) ... update : 1 year

: 20.2.2009

 

It is one of the older quoted property co's - so has more past track record than most

 

HK's Population

==========

1961 : 3.19 mn

1971 : 4.10 mn

1979 : 5.02 mn

1994 : 6.12 mn

2008 : 7.01 mn

"optimal size" is 10 mn - said Donald Tsang in 2007 (FT interview)

 

= = = = =

LINKS:

 

Square Foot website... : http://www.squarefoot.com.hk/section/magazine-this-issue/

The Standard, HK site :

Sing. & HK news......... : http://propertymarketupdates.com/category/...erty/hong-kong/

[drbubb]

Weekly Chart

 

Here's Centaline's Weekly Mass Market Index (MMI) + 09/06/2008

........ Jan'08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sep

 

It looks like the correction since CNY continued for some months.

We are coming up on 12 months since the Oct.2007 stock peak, and MMI has fallen to

the approximate level of the 12months MA ($65.89). This could be a support level.

 

DATA ===

Week==== : 35tr : prv : CCLI. : MMLI. : 18wkMA .. before /18

02/17/2008 : 137 : xxx : 73.81 : 71.08 : 63.41 ..

02/24/2008 : 153 : xxx : 73.28 : 70.33 : 64.15

03/02/2008 : 159 : xxx : 73.98 : 71.07 : 64.92

03/09/2008 : 186 : xxx : 73.5E : 70.5E : 65.61

03/16/2008 : 169 : 218 : 73.01 : 69.97 : 66.22

03/23/2008 : 121 : xxx : 72.79 : 69.72 : 66.78

03/30/2008 : 134 : 203 : 72.89 : 70.06 : 67.29

04/06/2008 : 146 : 193 : 73.75 : 70.91 : 67.82

04/13/2008 : 150e: xxx : 71.93 : 69.02 : 68.17 .. 1,227.11

04/20/2008 : 160e: xxx : 72.57 : 69.77 : 68.51 .. 1,233.11

04/27/2008 : 171 : xxx : 71.49 : 68.58 : 68.78 .. 1,238.04

05/04/2008 : 173 : 253 : 71.44 : 68.61 : 69.02 .. 1,242.33 / C.C.

05/11/2008 : 178 : 232 : 71.51 : 68.59 : 69.22 .. 1245.94 / $3,115

05/18/2008 : 150 : xxx : 71.86 : 69.11 : 69.40 .. 1249.20 / $3,085

05/25/2008 : 185 : 209 : 72.67 : 69.87 : 69.57 .. 1252.30 / $3,115

06/01/2008 : 170 : xxx : 72.16 : 69.26 : 69.65 .. 1253.63 / $3,127

06/07/2008 : 183 : 203 : 73.23 : 70.26 : 69.77 .. 1255.84 / $3,295 (! High in CC ?)

06/14/2008 : 171 : 211 : 71.30 : 69.61 : 69.80 .. 1256.32 / $3,154

06/21/2008 : 150e: xxx : 72.62 : 69.39 : 69.xx .. 12xx.xx / $3,030 (reflecting: 6/16 - 6/22)

06/28/2008 : 130e: xxx : 73.38 : 70.27 : 69.xx .. 12xx.xx / $3,111

07/05/2008 : 116 : xxx : 72.77 : 69.70 : 69.xx .. 12xx.xx / $3,240

07/12/2008 : 109 : 262 : 72.38 : 69.41 : 69.xx .. 12xx.xx / $3,192

07/19/2008 : 104 : 268 : 71.84 : 68.78 : 69.xx .. 12xx.xx / $3,025

07/26/2008 : 115 : 333 : 71.55 : 68.47 : 69.xx .. 12xx.xx / $3,324

08/02/2008 : 124 : 268 : 70.81 : 67.59 : 69.xx .. ==== / $3,194 (testing lows again!)

08/09/2008 : 112 : 224 : 70.46 : 67.24 : 69.09 .. 65.05 / $2,870

08/16/2008 : 107 : xxx : 70.49 : 67.31 : 68.99 .. 65.27 / $3,140

08/23/2008 : 104 : 157 : 70.13 : 66.92 : 68.83 .. 65.48 / $3,265

08/30/2008 : 123 : 212 : 69.94 : 66.86 : 68.74 .. 65.70 / $3,097

09/06/2008 : 121 : xxx : 68.93 : 65.93 : 68.59 .. 65.89 / $2,974 (testing again...)

09/15/2008 : 098 : xxx : 68.40 : 65.44 : xx.xx ... xx.xx / $3,070e

09/22/2008 : 083 : xxx : 68.26 : 65.26 : xx.xx ... xx.xx / $3,192

09/29/2008 : 080 : 329 : 67.52 : 64.46 : xx.xx ... xx.xx / $3,160

10/06/2008 : 084 : 391 : 67.44 : 64.61 : xx.xx ... xx.xx / $3,097 : Black Oct. week

10/13/2008 : 104 : xxx : 66.27 : 63.79 : xx.xx ... xx.xx / $3,159

10/20/2008 : 090 : 422 : 64.64 : 62.01 : xx.xx ... xx.xx / $2,925

10/27/2008 : 113 : xxx : 63.40 : 60.94 : xx.xx ... xx.xx / $2,950e

11/03/2008 : 132 : xxx : 61.61 : 59.09 : xx.xx ... xx.xx / $2,984

11/10/2008 : 157 : xxx : 59.93 : 57.94 : xx.xx ... xx.xx / $2,642

11/17/2008 : 129 : 465 : 57.43 : 55.41 : xx.xx ... xx.xx / $2,609

11/24/2008 : 102 : 337 : 57.00 : 55.03 : xx.xx ... xx.xx / $2,496

12/01/2008 : xxx : xxx : 56.92 : 54.99 : xx.xx ... xx.xx / $2,500e

12/08/2008 : xxx : xxx : 57.15 : 55.19 : xx.xx ... xx.xx / $2,512

12/15/2008 : xxx : xxx : 56.71 : 54.77 : xx.xx ... xx.xx / $2,541

12/22/2008 : xxx : xxx : 56.93 : 54.99 : xx.xx ... xx.xx / $2,670e

12/29/2008 : xxx : xxx : 56.78 : 54.89 : xx.xx ... xx.xx / $2,581

(Cal. 2009)

01/05/2009 : 191 : xxx : 57.52 : 55.75 : xx.xx ... xx.xx / $2,649

01/12/2009 : 187 : 396 : 57.51 : 55.94 : xx.xx ... xx.xx / $2,698

01/19/2009 : 187 : 396 : 57.99 : 56.42 : xx.xx ... xx.xx / $2,612

01/26/2009 : ??? : 396 : 58.38 : 56.87 : xx.xx ... xx.xx / $2,626

02/03/2009 : 056 : ??? : 58.53 : 57.02 : xx.xx ... xx.xx / $2,612

02/10/2009 : 124 : 072 : 58.35 : 56.75 : xx.xx ... xx.xx / $2,612

02/17/2009 : 152 : 137 : 58.70 : 57.28 : xx.xx ... xx.xx / $2,656

 

Sorry, can you explain what the figures mean?

What the columns are and the abbreviations? and where I can find them?

many thanks, Starterpack

 

35tr... : 35 main estates tracked by Midland

prv ... : Previous year's figure

CCLI. : Centaline's weekly index

MMLI. : Centaline's weekly index for the Mass Market

18wkMA: 18week Moving Average of the above

Last... : Last column is the average price per sf for Caribbean Coast

[drbubb]

For someone living in Tung Chung it is clear that CC offers good value for money but many people still feel Tung Chung is way out there. Personally I think the TC MTR line is the best to ride (not as crowded as Tsuen wan of island line) and you get into central in less than 30 minutes.

 

I have just finished watching the Youtube video on Harrison's 18 year property cycle. Very informative and clear. Thanks for doing a great job DrBubb.

 

I have also read the thread. I have been wondering where HK is on this cycle and where is it heading. I think we are still in the recovery phase. To be followed by a dip and then the explosive phase?

 

I looked at the residential price index on Midland but it only goes back to 1991. Does anyone know where we can find an index that goes back earlier? It would be interesting to see how Harrison's cycle plays out historically in HK.

 

Some good questions.

Certainly, you could be right- we are only 5 years off the 2003 low, and so the mid-cycle correction may still lie ahead,

after another rally in late 2008 or early 2009. That was my view for a long time. But the longer this drags on, and the more

bearish sentiment gets, the more likely it is that THIS IS IT, we are in the mid-cycle correction already, which has become

my preferred view with the latest increase in bearish sentiment.

 

(I will copy this to the HK cycle thread)

 

[drbubb]

The 18 year cycle fits well with the narrative of the US and UK. Is this the case with HK? Or is it on a shorter cycle. In the current cycle the bottom was in 2003, when was the previous bottom? Was the low after the "Tiananmen incident", the mini-recession in the previous cycle?

 

Good questions.

 

I dont have the HK property index data before these charts:

Midland's data

Centaline's data

 

What I do have is Stock price data.

 

Here is the Main bellwether : Henderson Land (HK:12) ... update

Same chart (HK:12), on a log scale ... update

 

And here's another:

Cheung Kong (HK:1), on a logarhymic scale ... update : 1 year

== ==

 

HONG KONG's 18 YEAR CYCLE !

 

I had to do a bit of digging to find this - but I finally found it!

It is very clear, here on this chart, which is Cheung Kong's stock price, expressed in US$- traded in the US.

 

Cheung Kong in US$ (CHEUY) ... update / compare: US-CTX

 

Here's what I see:

 

+ An important low in 1983 (US$0.16 in Oct.1983)

+ 4 years up to a mid-cycle peak ($1.75 in Sept. 1987) - that's over 10x !

+ A quick mid-cycle correction ($0.75 in Dec.1987, that's only 3 months down)

.. This quick cycle was driven by the 1987 crash. An alternative low, my preferred one,

.. after an A-B-C move might be July 1989 at $0.87.

+ 8 years up to a Cycle peak (US$12.60 in Aug.1997 - that's 79x up in 14 years !)

+ 13 months down to a A-low* at $3.73 on 1 Sept.1998 : -70% from 1997's peak

+ A B-wave rally to $15.42, 14 Feb. 2000 (CHEUY high, but not in some other builders, like HK:12)

+ A minor low in 2001 at $8.20 on 19 Oct. (when the 18 year cycle "wanted" a low) : -46.8%

+ A lower low - C-wave - at $5.20 on 24 April 2003, thanks to SARS : -66.3% down from 1997's peak

 

*Note: the correction from the 1997 peak is much clearer in the chart of Henderson (HK:12)

 

Henderson /HK:12 chart for 1996-2004 : update 2001-2008

 

The next mid-cycle peak was due in 2007/8, counting 7 years up from the 'expected' 2001 low.

And I reckon that we have seen it.

[drbubb]

EVERYONE DOESNT see an 18 year cycle in all property markets.

 

Singapore:

"The Singapore property market has an 11 year price cycle. The current cycle is expected to peak in 2010. [9]. The Singapore’s property market is however, vulnerable to turbulence in its local economy. The threats that face this include, raising inflation, under performance in forecast economic growth and weaker export business out of the country."

 

/see: http://en.wikipedia.org/wiki/Asian_property_market

 

Asia - Cycles compared

/source: http://info.hktdc.com/econforum/sc/sc070301.htm

[drbubb]

1979 PEAK ?

=========

 

I am looking for references to a possible 18 year cycle peak in 1979. I found these on Google:

 

"through the period 1978 and 1995, with two clear peaks in 1979-1980 and 1987-1988. .... investors engage in a three to four years’ investment cycle."

 

/see: http://www.fb.cityu.edu.hk/research/apec/c...ers/Jan2000.pdf

 

"second half of the 1970s, reached its peak in 1979 and then began to ...... Source: Rating and Valuation Department (2006) Hong Kong Property Review 2006. ..."

 

/see: http://hub.hku.hk/bitstream/123456789/48888/1/b37937352.pdf

 

CHARTS (HK, Singapore, etc. in figure #1 appendix):

http://www.oiu.ac.jp/kyoiku/int_rel/pdf/WP57.pdf

[drbubb]

Elliott wavers are of a similar view...

"Several more years before any major downturn"

 

Hong Kong

"The Asian Financial Crisis of 1997-1998 was an A-wave in a multi-year correction in many Asian stock markets. That wave also initiated the second most severe real estate crisis in the region, after Japan, of the 1990's. Hong Kong's housing prices, according to Hong Kong University's Residential Price Index, peaked in October 1997, just two montsh after the Hang Seng Properties Index. Despite the recovery in share prices after 1998, housing prices continued falling for a total of six years until 2003, when they were worth only one-third of their peak value. Since then, they have regained about half of that loss on a nominal basis.

 

Based on the relatively mild decline in the Hang Seng Properties Index, Hong Kong (along with Singapore) is probably the best positioned to weather any housing crisis well. The impact, if any, should be no worse than the 1994-1995 housing slump, which coincided with a correction in the stock market of similar degree to the current one. If our long-term wave count is correct, home prices should then continue to recover for several more years before any major downturn becomes likely."

 

EWI is looking for a rally in Asian Stock indices to start soon, if not already underway. "Negative sentiment is slowly being exhausted." For HK, the correlation with the stock market (for property) is highest at 95%. They see a B-wave bounce starting immanently, which could take the market to maybe 27,000 or higher, before an expected C-wave back down.

[drbubb]

HK Property prices have fallen to the 12.months.MA

 

Here's Centaline's Index for Caribbean Coast

 

The correction since around CNY continued for some months.

We are coming up on 12 months since the Oct.2007 stock peak, and MMI has fallen to

the approximate level of the 12months MA ($65.89). This could be a support level.

 

In many markets, this MA has provided good support. Let's see if it happens this time.

There were some grim headlines, and forecasts of 30% drops, so a large fall this past

week (from 66.86 to 65.93 in the MMI- that's 1.4% down in a week) was not surprising.

 

Remember, the peak came in February and those same forecasters were talking about

25-30% rises for 2008. look what happened to those forecasts! The reported forecasts

are an indicator of sentiment, not of truth or reality.

 

........ Jan'08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sep

 

The big forecast of future gains came when the year-on-year gains had reached amazing

levels. They peaked in mid-February at +35.2% y-o-y. The one year increase is now just

18.5%, and will narrow rapidly in the weeks to come, since last year prices were moving up

very fast in Q4.

 

This is also coming at a time when the dollar has been very strong, eroding HK's competitive

advantage, and also making HK property prices look relatively more expensive to foreign

buyers.

 

Here's the trade-weighted US dollar over the past 18 months.

xxx

 

I think the dollar peaked on Thursday last week, at near 80.40. By Friday's close it had fallen

sharply to 79.xx. This is unlikely to have an immediate impact on HK property prices, but it

is one of the important factors "in the mix" along with the Chinese stock market, and the global

credit crisis.

 

MMI-cl finished 2007 at 64.32, so it is still a bit ahead for the year.

[surfdude]

The next mid-cycle peak was due in 2007/8, counting 7 years up from the 'expected' 2001 low.

And I reckon that we have seen it.

 

If we are now in the mini-recession, the question is how long will it last until HK experiences the explosive phase? Will this be a longish mini-recession or will things be on the upswing soon. I spoke with a friend who has been in construction/property in HK for 15 years, he thought things will still go a bit lower in HK.

[drbubb]

...he thought things will still go a bit lower in HK.

 

That is certainly possible.

I expect there is a chance that China may move to loosen credit as soon as this week.

That might be the sign we need that a Turn is coming. What the delay after such an

action would be is impossible for me to predict

 

[drbubb]

I think this could be big news - especially if it proves the first of several, as I expect:

 

China cuts key lending rate by 27 basis pts; deposit rates left intact - UPDATE3

09.15.08, 9:13 AM ET

 

BEIJING (XFN-ASIA) - The People's Bank of China (PBoC) announced that it is cutting the benchmark one-year lending rate by 27 basis points to 7.20 pct from tomorrow.

 

It marks the first cut in China's key interest rate since February 2002, and suggests that authorities are concerned about slowing growth.

 

The PBoC said it will also cut the 6-month lending rate by 36 basis points to 6.21 pct. The rate for loans between three and five years will be cut by 18 basis points to 7.56 pct, while the five-year lending rate will be cut by 9 basis points to 7.74 pct.

 

Interest rates on mortgage loans are also being cut, the central bank said.

 

/more: http://www.forbes.com/afxnewslimited/feeds...afx5423838.html

 

== ==

 

BEFORE SOME bright spark jumps in, and says:

"But this is talking about rates in China, not HK."

The thing to watch is the impact on stock prices in China and HK.

And the impact may not be immediate, HK may sldie tomorrow (and for a few days)

if the Lehmans news ripples. But I think stocks will be rising by the end of the week,

or next week, and that may (eventually) turn property up too.

 

Watch this, but dont expect an immediate jump

[surfdude]

And the impact may not be immediate, HK may sldie tomorrow (and for a few days)

if the Lehmans news ripples. But I think stocks will be rising by the end of the week,

or next week, and that may (eventually) turn property up too.

 

Watch this, but dont expect an immediate jump

 

To see how bad that slide is read this bloomberg article:

 

Hong Kong Stocks Tumble to Two-Year Low on AIG, Lehman

By Hanny Wan

 

Sept. 16 (Bloomberg) -- Hong Kong's stock benchmark fell to its lowest in almost two years, amid a global rout, as credit losses caused a debt rating downgrade of American International Group Inc. and Lehman Brothers Holdings Inc. filed for bankruptcy.

 

HSBC Holdings Plc, Europe's biggest bank, lost 4.1 percent. Cnooc Ltd., China's third-largest oil company, declined 9.2 percent after crude oil prices dropped.

 

Investors are ``aggressively moving cash to the safest places to be,'' said Adam Tejpaul, head of Asia investments at J.P. Morgan's Private Bank, which oversees more than $400 billion in global assets. ``It's not yet time to buy. You'll continue to see a bit of volatility in the coming days.''

 

The Hang Seng Index lost 1,091.05, or 5.6 percent, to 18,261.85 as of 11:27 a.m. local time, set for its worst close since October 2006. The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese companies, slid 6.6 percent to 9,316.20.

 

Hong Kong's financial markets will experience volatility following the bankruptcy filing by Lehman Brothers Holdings Inc., said Joseph Yam, chief executive of the Hong Kong Monetary Authority.

 

``This is a severe crisis,'' he said. ``There'll be a negative impact on the Hong Kong financial market for sure. We expect to see volatility in prices but there should be no structural problems.''

 

HSBC retreated 4.1 percent to HK$117.10. Sino Land Co., a Hong Kong-based developer, plunged 10 percent to HK$10.08, headed for its lowest close since January 2006. China Shenhua Energy Co., the country's biggest coal producer, sank 13 percent to HK$19.10. Industrial & Commercial Bank of China Ltd., the nation's biggest bank by market value, declined 6.5 percent to HK$4.49.

 

Insurer Support

 

AIG, the biggest U.S. insurer by assets, may be propped up by $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to people familiar with the situation. Standard & Poor's cut its long-term counterparty rating by three levels to A-. Moody's Investors Service lowered its senior unsecured debt rating to A2 from Aa3.

 

Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis.

 

Three Lehman units suspended operations in Hong Kong with immediate effect, it said in a statement. Operations have been halted, including trading on the city's securities and futures exchanges, at Lehman Brothers Asia Ltd., Lehman Brothers Securities Asia Ltd. and Lehman Brothers Futures Asia Ltd., an e- mailed statement said. Lehman's asset management arm, Lehman Brothers Asset Management Ltd., ``will continue to operate on a business as usual basis.''

 

Oil Plummets

 

Cnooc lost 9.2 percent to HK$8.51. PetroChina Co., the nation's largest oil producer, retreated 7.4 percent to HK$7.96.

 

Crude oil futures plunged 5.4 percent to $95.71 a barrel in New York yesterday, the lowest settlement price since Feb. 15. The contract was recently at $91.84 in after-hours trading.

 

Shimao Property Holdings Ltd., the Chinese developer controlled by billionaire Xu Rongmao, sank 17 percent to HK$4.91, the steepest slump since its July 2006 debut. China Overseas Land & Investment Ltd., a developer controlled by China's construction ministry, lost 8.7 percent to HK$8.34.

 

Property prices in China grew at the slowest pace in 18 months, the nation's top economic planning agency said. Prices in 70 major cities across the nation rose by 5.3 percent in August from a year earlier, compared with 7 percent growth in July, the National Development and Reform Commission said.

 

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net

 

 

This is going to be a bad week for stocks in HK, especially with the news of AIG scaring everyone. Let's hope the easing of credit in China will stimulate activity there.

 

 

[drbubb]

This is going to be a bad week for stocks in HK, especially with the news of AIG scaring everyone. Let's hope the easing of credit in China will stimulate activity there.

 

It is possible that the worst will be seen today.

It depends on how bad things get as AIG faces reality

 

I think China's easing will continue, but the market is preoccupied today with Wall Street's problems,

and isnt ready to think of much else

[drbubb]

Interesting trading day in Hong Kong

 

The HSI got as low as : 16,283 in the morning session, and there's a chance it made a key low today

 

Why?

Last year's peak was just a touch below 32,000* (and maybe above that on an intraday basis.)

It is not unusual for sliding markets to find support at exactly 50% of their peak value, and so support was

expected to be found at 16,000. The HK market, like other global markets is deeply oversold now.

 

A bounce could turn into a sustainable rally

 

== == ==

HSI Chart (hk:1804580) ... update

 

*Oct. 30, 2007 : 31958.41 high, intraday

[drbubb]

(For the cyclical record here):

 

Then the old geezer makes his second point - he figures inflation causes only one thing - higher interest rates- and that will push property prices DOWN due to lower affordability! HKG is unique in this respect. Figures over the next 5 to 10 years property will essentially oscillate in the same sort of price range it has been in in the past ten years.

 

Comments?????

 

If inflation spills over into wages, and rents, it can help to drive a property market higher.

In fact, we have been seeing that, with rents up 20% or more in many part of HK from mid-2007

 

I think this correction, however long it lasts, will be followed by Harrison's "explosive phase."

I was hoping for a quick correction of only a few months, ending before 2009. but it may be worse than that.

The papers yesterday, were chock-a-block with articles showing bearish sentiment*. It does worry me somewhat,

but then I recall that the papers were full of bullish sentiment, predicting 30% rises in HK prices for 2008,

just as the market was peaking.

 

Next, I would like to see:

 

+ The HK property market holding its own, while the bearish sentiment reigns

+ A good sized jump in Chinese and HK stocks

+ Rents continuing to hold

 

If these pieces come together over the next few weeks, and months, it would help to restore confidence.

A turn in sentiment from this Bearish extreme, would bring the buyers back, however unlikely that looks today.

 

(Do stay careful, in case my views prove optimistic, but watch for the developments above)

 

*

There was a guesstimate by a CLSA analyst that 50% of the primary market and 30% of the secondary market activity earlier this year was speculation. I think that's pretty accurate, and in the current financial environment speculators aren't buying. I also think they were responsible for the huge price surge which occurred between autumn 2007 and the 'peak' this past March.

I don't think the mass market really skyrocketed so it seems reasonable to assume it will stabilize for the time being.

 

I saw those figures too, and wondered where they came from. (SCMP's Sandy Li quoted Nicole Wong, of CLSA)

My big question is: if she has such data, why didnt we hear it before when CLSA and other analysts were talking about

huge price gains for 2008? The inconsistency is one reason that I tend to doubt the validity of what these stock analysts say.

They seem to take whatever the current sentiment is, and blow it up into a 12-18 month's forecast - that's not very convincing.

 

What they should be talking about:

+ There are a number of properties in "weak hands" (Mainland buyers), and their selling is damaging the market.

Many such properties were sold with 12 month's deferred purchase, and so the market may need to work through purchases

contracted when the Chinese stock market was about twice current levels,

 

+ The big slowdown in sales transactions means that much fewer properties are now in "limbo" - awaiting buyers, and sitting vacant

in that awkward period between sale and completion. The properties that were once in limbo have come onto the rental market,

which is putting some immediate downwards pressure on rents, thanks to the "extra" supply. This is a short term impact, which

I think has added something like 100 properties to the rental supply in CC/ Tung Chung. As they are absorbed, we will see what

type of staying power there is in last year's rental rises.

 

+ Despite the bearish sentiment (or maybe because of it), we may be putting in a Sept. low in Chinese and HK stocks. A push in stocks

above HSI-22,000 or 25,000 may be just what the market needs to start getting its confidence back. If people start seeing that,

some may find current bargains irresistable.

[desertorchid]

(For the cyclical record here):

 

 

 

If inflation spills over into wages, and rents, it can help to drive a property market higher.

In fact, we have been seeing that, with rents up 20% or more in many part of HK from mid-2007

 

I think this correction, however long it lasts, will be followed by Harrison's "explosive phase."

I was hoping for a quick correction of only a few months, ending before 2009. but it may be worse than that.

The papers yesterday, were chock-a-block with articles showing bearish sentiment*. It does worry me somewhat,

but then I recall that the papers were full of bullish sentiment, predicting 30% rises in HK prices for 2008,

just as the market was peaking.

 

Next, I would like to see:

 

+ The HK property market holding its own, while the bearish sentiment reigns

+ A good sized jump in Chinese and HK stocks

+ Rents continuing to hold

 

If these pieces come together over the next few weeks, and months, it would help to restore confidence.

A turn in sentiment from this Bearish extreme, would bring the buyers back, however unlikely that looks today.

 

(Do stay careful, in case my views prove optimistic, but watch for the developments above)

 

*

 

I saw those figures too, and wondered where they came from. (SCMP's Sandy Li quoted Nicole Wong, of CLSA)

My big question is: if she has such data, why didnt we hear it before when CLSA and other analysts were talking about

huge price gains for 2008? The inconsistency is one reason that I tend to doubt the validity of what these stock analysts say.

They seem to take whatever the current sentiment is, and blow it up into a 12-18 month's forecast - that's not very convincing.

 

What they should be talking about:

+ There are a number of properties in "weak hands" (Mainland buyers), and their selling is damaging the market.

Many such properties were sold with 12 month's deferred purchase, and so the market may need to work through purchases

contracted when the Chinese stock market was about twice current levels,

 

+ The big slowdown in sales transactions means that much fewer properties are now in "limbo" - awaiting buyers, and sitting vacant

in that awkward period between sale and completion. The properties that were once in limbo have come onto the rental market,

which is putting some immediate downwards pressure on rents, thanks to the "extra" supply. This is a short term impact, which

I think has added something like 100 properties to the rental supply in CC/ Tung Chung. As they are absorbed, we will see what

type of staying power there is in last year's rental rises.

 

+ Despite the bearish sentiment (or maybe because of it), we may be putting in a Sept. low in Chinese and HK stocks. A push in stocks

above HSI-22,000 or 25,000 may be just what the market needs to start getting its confidence back. If people start seeing that,

some may find current bargains irresistable.

 

 

I'm afraid there appears very little support to the HK property market at present. It is a highly speculative market and many owners are presently keen to cash in on profits from recent years. Mortgage rates are rising and luxury property prices are at 1997 bubble peaks. Most importantly price/income ratios are extraordinary compared to other developed economies. Average income levels remain very low and have pretty much gone nowhere in the last 12 years. Apartments remain grossly unaffordable for the majority of HKongers. A 20-30 % drop is becoming more widely touted along with a much needed drop in rentals. Hope remains in employment remaining high and a limited rise in rates - (to 3.5% max). I am not hopeful though with the way things are unfolding.

[drbubb]

. A 20-30 % drop is becoming more widely touted along with a much needed drop in rentals.

Hope remains in employment remaining high and a limited rise in rates - (to 3.5% max). I am not hopeful though with the way things are unfolding.

"Much needed drop in rentals" - by whom?

Remember, that the HK is tied to the weak US dollar, and rents in Rmb or Sing. dollar terms have been falling.

Albeit there was a lift this summer when the dollar showed a multi-week bounce

 

New supply of properties remains rather tight (in historic terms), and people with money go on combining flats,

and creating new households, absorbing supply

 

One thing that will push up supply of rental properties, and give rentals a (brief?) downwards push may be the

big slowdown in transactions. I estimate that over 100 properties were in the sales "pipeline", either on the market

for sale, or stuck in that multi-week limbo period between price negotiation and completion.

 

The properties that were in the pipeline have moved through completion meaning they are now available for owners

to move in, or renting out on the market.

[drbubb]

A mid-cycle correction might look something like this

 

 

...and I am now thinking it will be deeper than I had expected before

[drbubb]

Interesting trading day in Hong Kong

The HSI got as low as : 16,283 in the morning session, and there's a chance it made a key low today

Why?

Last year's peak was just a touch below 32,000* (and maybe above that on an intraday basis.)

*Oct. 30, 2007 : 31958.41 high, intraday

 

Half of that is: 15,979.2 / Today the market is trading below 16,000.

The close on: Oct. 30, 2007 was: 31638.22

Half of that is: 15,819.11

 

Today's range:

15922.13 Change: -881.63

Open: 16107.98 High: 16422.52 Low: 15589.22

[drbubb]

The original chart was posted by Bigg Moonster

 

I added the lines in Gold.

We may be a position similar to 2001.

There was a decent bounce (similar might be to 21,000) and then an 18 months erosion.

 

We could get that again, (or worse). But not necessarily. Avoiding that, might require

a strong move up in CSI-300, which could be near some sort of low.

 

I drop in Hibor woukld also help to restore confidence

[surfdude]

DrBubb, I was wondering if you could offer a bit more of a narrative analysis for those, like me, who are not adept at chart analysis. When can we expect the bounce and how long will it last (it seems like the one in 2001 lasted about three months)? What would be the catalyst from bringing the bounce about?

 

There are alot of lines on the HKEX chart.

 

Cheers!

[drbubb]

DrBubb, I was wondering if you could offer a bit more of a narrative analysis for those, like me, who are not adept at chart analysis. When can we expect the bounce and how long will it last (it seems like the one in 2001 lasted about three months)? What would be the catalyst from bringing the bounce about?

 

more HKSI charts : on Advfn

 

I added the lines in Gold.

What we saw, was the HK market plummetting into an Oct.2001 low, and then rallying from some months.

Then it slid back to retest those lows, with a final low 18 months later. Remember, the second low (the

retest) was partly driven down by the arrival of SARS. Without the SARS outbreak, the 2001 low might

have been sufficient.

 

Currently, I think the recent drop in HKX is due to fears that the big falls in the US, will hit the HK economy.

That is very likely. In fact, all those job losses amongst the IBankers (where maybe thousands of jobs have

been shed) mean that HK is already feeling it already, especially the property market- which is also hit

by the high Hibor and banks' unwillingness to lend.

 

-speaking of us stocks, which may lead HK:

The market is very oversold, and there are huge amounts of cash on the sidelines, so it wont take much

to bring a rally. One thing that would help alot is a drop in Libor. The Fed will keep trying different "rescues"

until they achieve that. Next up could be: guaranteeing tarsnactions between banks.

 

I still think some sort of low will be in place by the end of the month (Larry P says Oct.25th- that's possible.)

After that, I would expect a rally of 1-6 months, and then maybe a retest sometime in 2009/10 unless we

go into hyperinflation.

 

Here's another view, showing similar timing:

Bear market rally on the works?

http://cij.inspiriting.com/?p=560

 

But remember: anything can happen- so it need not play out this way.

[surfdude]

-speaking of us stocks, which may lead HK:

 

How much of a lag will there be with property following the stock market if some of that money sitting on the sidelines starts to pour in and there is a mini-boom? Traditional thinking is that property follows the stock market by 3-6 months. Maybe that is how long it takes for some to make some money made out of equities and then switch to property.

 

However, I think property could follow on the heels of a recovery in stocks as there is alot of money on the sidelines as you say and property prices have dropped alot.

[drbubb]

How much of a lag will there be with property following the stock market if some of that money sitting on the sidelines starts to pour in and there is a mini-boom? Traditional thinking is that property follows the stock market by 3-6 months. Maybe that is how long it takes for some to make some money made out of equities and then switch to property.

 

However, I think property could follow on the heels of a recovery in stocks as there is alot of money on the sidelines as you say and property prices have dropped alot.

 

It could.

But confidence will have to be restored, rents stabilised, and banks willing to lend

against values above current panic-selling levels.

 

That will take some time, and may not be easy to achieve in a few months

 

[drbubb]

UPDATED

Here's Centaline's Weekly Mass Market Index (MMI) + 10/06/2008

.......... Jan'08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Dec

Compare

 

I continue to think a break in Libor/ Hibor is needed to begin to restore confidence.

Will a drop in Libor back to under 3% be enough? Not without some help from the Stock market, I reckon