Market Memo: Hong Kong and Singapore shrug off China slowdown
While the eurozone recession has cut into growth in China and other Asian countries, a recent visit to Hong Kong and Singapore found a high level of activity and optimism about the future. Unemployment remains extremely low, growth is accelerating and the real-estate markets are very robust in these two major Southeast Asian financial centers—reasons both continue to merit significant overweights in our international portfolios.
In Hong Kong, commercial rents are at record highs, bolstered by a negligible 4% vacancy rate in the prime business district and little new office supply coming on line the next several years. Home prices also are at new highs, aided by mainland Chinese buyers who represent nearly 20% of Hong Kong’s residential market and spent almost $1 billion there last year. Supply-and-demand metrics should continue to buttress prices the next several years, with demand projected at 20,000 units annually through 2015, versus the 12,000 units expected to become available each of the next three years.
The scenario is much the same in Singapore, where residential property prices are touching new highs amid rising demand. In September alone, new-home sales jumped 84% from August and were up 46% year-over-year. For the full year, we expect new-home sales in Singapore to reach 21,000 units, up 30% from 2011.
Extremely low interest rates, combined with surging rental demand (and thus rents), are helping drive the Hong Kong and Singapore property markets, creating a positive and widening spread between rental property yields and government bonds. Other factors include unemployment rates of 3% in Hong Kong and 2% in Singapore; rising “upgrade” demand from commercial and residential tenants; and favorable changes in regional demographics. Singapore, for example, added 100,000 new foreign workers in 2011, the majority in high-paying professional jobs.
To be sure, the protracted crisis in Europe has been a drag on these and other trade-dependent Asian economies. However, in Hong Kong, both imports and exports rebounded somewhat in August—the most recent month available—as a pickup in demand from China and Japan outpaced the drop-off from Europe, ending two months of trade contraction. And in Singapore, August’s headline inflation hit a nearly two-year low, clearing the way for monetary authorities to potentially relax policy and ease currency appreciation. Such a move should bolster real GDP growth, which Consensus Economics already is forecasting will rise to 3.6% in both Singapore and Hong Kong next year.