- Real GDP declined by -3.5% in 2022. It is expected to grow by 6.5% in 2023.
- Retail sales value is projected to grow by 20% this year.
- Shaky demand from the US and EU could be offset by the recovering Chinese economy.
- We have adjusted our terminal 3M HIBOR forecast from 5.68% to 4.68%.
- Home prices should stay flat in 2023.
Real GDP declines 4.2%yoy in 4Q22 to conclude 2022 at -3.5%. This marked the 3rd annual contraction since 2019. On sequential basis, it is largely flat. Looking ahead, the earlier-than-expected reopening of Mainland border will boost the Hong Kong economy on all fronts. Due primarily to low base comparison, we have upgraded the 2023 GDP forecast from 3.8% to 6.5%. Meanwhile, inflation will accelerate at a moderate pace of 2.8%. All told, the city’s economy should be in a goldilocks scenario.
Private consumption expenditure grew by 1.7%yoy in 4Q after 3 quarters of contraction. Unemployment rate fell from the 5.4% in Feb-Apr22 to 3.5% in 4Q. Contraction of labour force narrowed from -3.8% in Mar-May22 to -1.5% in 4Q22. The strengthening labour market should help jobless rate to fall to pre-social unrest level of 2.8%
Retail sales is set to rebound. Tourists spending accounted for around 30% of overall retail receipts before COVID, of which almost 80% were attributed to Mainland Chinese tourists. Daily visitor arrivals from Mainland leapfrogged from average of 2,100 in Dec-22 to around 10,400-16,400 since the Lunar New Year. This returned to around 40% of Jan-20 level. We expect tourism to see stronger growth momentum after Lunar New Year as China has reached herd immunity. Retail sales value is projected to grow by 20% this year, of which F&B and tourists hot picks such as jewellery, cosmetics and clothing will see the strongest upside. These products saw the largest gap comparing to 2019 level.
On external front, decline in goods exports extended from 15.8% YoY in 3Q to 24.8% in 4Q amid lingering Zero-COVID policy in China. Shipment to Mainland dropped by 25.0% in 4Q in value terms. Exports to US, EU and UK also plunged by double-digit due to tightening of monetary policy. Baltic Dry Index had retreated recently to mid-2020 level, indicating a sagging global demand. Meanwhile, imports contracted further from 15.8% YoY in 3Q to 22.8 % in 4Q.
Hopefully, shaky demand from the US and EU could be offset by the recovering Chinese economy on entering 2Q23. Afterall, shipments to China account for 60% of Hong Kong’s exports. Cargo and flight capacities are building up in anticipation of recovery ahead.
Gross Domestic Fixed Capital Formation (investment) will rebound on noticeable low base. It fell further by 11.2% YoY in 4Q, down from 14.4% in 3Q. This marked the 13th quarter of contraction in the past 17 quarters. As a result, outstanding loan contracted by 3.9% YoY in December. That said, machinery & equipment CAPEX will likely rejuvenate on the back of foreign companies' return. Meanwhile, both public and private real estate investment could bottom out as government will push the development of New Territories North and West Metropolitan Project as well as Lantau Tomorrow Project.
Decelerating trend of interest rate is instrumental in shoring up investment sentiment. ETF net inflow into Hong Kong’s stock market reached USD4.6bn in Nov and Dec, compared to an outflow of USD2.6bn in Oct and Nov. 1M and 3M HIBORs fell from the peak of 5.08% and 5.42% to 2.66% and 3.62% as of yesterday. Even if HKMA acquires HKD from the interbank market (Aggregate Balance) on weaker HKD exchange rate, HKD rates will likely peak out at a lower level. We have downward adjusted our terminal 3M HIBOR forecast from 5.68% to 4.68%.
Against this backdrop, home prices should stabilize and stay flat in 2023. Sentiment has been improving on the border reopening. The Centaline Leading Index saw mild recovery of 0.7% from its 5 year-low in January. Nonetheless, a bumper run is not likely in the near term. Valuation Diffusion Index from major banks slightly recovered from historical low of 1.99 in Dec-22 to 8.51. Afterall, it takes time to rebuild investor confidence. Demand from Chinese investors will likely be subdued as their income level takes time to be mend. Our nowcasting model suggested that the 1Q China GDP will only grow by 2.5% YoY. Also, prevailing negative rental yield suppresses investment demand from both domestic and Mainland investors. Prime rate is now set at 5.625%, with effective mortgage rate stays elevated at 3.625%. This is much higher than rental yield of 2.1-2.7% across all residential property classes.
Inflation measured by the CPI grew at a moderate pace of 1.9% in 2022. Sharp rise of utility prices and food costs were offset by weak rental costs, which accounts for 40% of the CPI basket. This is expected to reverse from its downtrend on improving economic condition. Labour costs will rise due to a tightening job market. As such, CPI projection is adjusted upward from 2.0% to 2.8%.
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The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company 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. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, 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 Company 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 Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein 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. The 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.
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Completed Date: 18 Jan 2023 11:04:34 (SGT)
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HONG KONG DBS (Hong Kong) Ltd Contact: Dennis Lam 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: 852 3668 4181 Fax: 852 2521 1812 e-mail: [email protected] | SINGAPORE DBS Bank Ltd Contact: Paul Yong 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 e-mail: [email protected] Company Regn. No. 196800306E
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INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]
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[1] An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
[2] Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.