CICC Hong Kong Economic and Financial Quarterly Report: Exports continue to rise, high interest rate impact weakened

According to the Zhitong Finance and Economics APP, CICC released a research report stating that in the second quarter of 2024, the economy of Hong Kong, China continued to grow moderately, with exports continuing to rise, goods trade continuing to improve, and service trade growth slowing down. In terms of domestic demand, consumption growth slowed down while investment growth accelerated. Interest rates remained high in the second quarter, with a 50 basis point cut in the third quarter following the Fed's rate cut. In terms of exchange rates, against the background of the reversal of the yen carry trade in the second quarter, the Hong Kong market became a global safe haven for funds, driving the strength of the Hong Kong dollar exchange rate. In the stock market, overall improvement was seen in the Hong Kong stock market in the second quarter, with improved trading activity. In terms of fund flows, in the second quarter of 2024, there was a net outflow of northbound funds, a net inflow of southbound funds, and overseas funds turned into inflows.

Economic Aspect: In the second quarter of 2024, the economy of Hong Kong, China continued to grow moderately, with GDP increasing by 3.3% year-on-year and 0.4% quarter-on-quarter. In terms of domestic demand, consumption growth slowed down while investment growth accelerated. In the second quarter of 2024, private consumption expenditure decreased by 1.5% year-on-year, a 2.7 percentage point decrease from the first quarter of 2024. In the second quarter of 2024, the total fixed capital formation in Hong Kong, China increased by 6.0% year-on-year, a 5.9 percentage point increase from the first quarter of 2024. In terms of external demand, goods trade continued to improve while service trade growth slowed down. In the second quarter of 2024, Hong Kong's goods exports increased by 7.5% year-on-year, a 0.7 percentage point increase from the first quarter of 2024. In the second quarter of 2024, Hong Kong's service exports increased by 1.4% year-on-year, an 8.0 percentage point decrease from the first quarter of 2024. In terms of employment, the unemployment rate and underemployment rate in the labor market remained low. In the second quarter of 2024, the seasonally adjusted unemployment rate in Hong Kong was 3.0%, unchanged from the first quarter of 2024. The underemployment rate in the second quarter of 2024 was 1.2%, slightly higher than 1.1% in the first quarter of 2024, showing overall stability. Inflation slightly eased in the second quarter of 2024, with the overall consumer price index in Hong Kong increasing by 1.2% year-on-year, a 0.7 percentage point decrease from the first quarter of 2024.

Interest Rate Aspect: Interest rates remained high in the second quarter, with a 50 basis point cut in the third quarter following the Fed's rate cut. In terms of exchange rates, against the background of the reversal of the yen carry trade in the second quarter, the Hong Kong market became a global safe haven for funds, driving the strength of the Hong Kong dollar exchange rate. In the stock market, overall improvement was seen in the Hong Kong stock market in the second quarter, with improved trading activity. In terms of fund flows, in the second quarter of 2024, there was a net outflow of northbound funds, a net inflow of southbound funds, and overseas funds turned into inflows.

Real Estate Aspect: After the Hong Kong government "unleashed" (repealed residential property demand management measures) at the end of February, the stimulating effect on the property market was concentrated in 2Q24, with new home and second-hand home transaction volumes increasing by 128% and 64% respectively quarter-on-quarter; correspondingly, new approvals and drawdowns of residential mortgages also improved quarter-on-quarter. However, the downward trend in prices has not stopped, with small and large unit price indices in 2Q24 falling by 0.7% and 2.7% respectively quarter-on-quarter. In addition, private residential rental performance continued to be strong (average rent in 2Q24 +6% year-on-year), pushing the Hong Kong residential rent-to-buy ratio to 3.4%, further narrowing the gap with new residential mortgage rates (around 4.2% at the end of June). Looking ahead, considering the Fed's initiation of a rate cut cycle with the first rate cut of 50bps, we believe that the relative attractiveness of Hong Kong property rent-to-buy ratio will marginally increase, and we will continue to monitor the sustainability of housing demand and whether housing prices can gradually stabilize under the rebalancing of supply and demand Banking Sector: In the second quarter, the credit demand of the Hong Kong banking industry still awaits recovery, with a 1.9% decrease in loan balance at the end of 2Q24 compared to the beginning of the year. The decrease is mainly attributed to offshore loans, while deposit balance increased by 3.2% compared to the beginning of the year, leading to a further decline in the loan-to-deposit ratio to 59.7%. By the end of 2Q24, the CASA deposit ratio of the banking industry rose by 0.4 percentage points to 40.7% compared to the first quarter. We believe this is mainly due to the adjustment of fixed deposit interest rates and the recovery of the stock market performance. Although HIBOR levels continued to decrease in 2Q24, the net interest margin of the banking industry slightly improved, mainly due to the repricing of high-interest fixed deposits upon maturity, reducing the cost of liabilities. In terms of asset quality, Hong Kong banks still face pressure, with the non-performing loan ratio rising by 19 basis points to 2.10% at the end of 2Q24. We believe close attention should be paid to the evolving risks of commercial real estate exposure in the future