Friday, August 14, 2009

Hong Kong Climbed Out Of A Yearlong Recession

. Friday, August 14, 2009

By stockOzone team

Hong Kong climbed out of a yearlong recession as trade improved, adding to signs that the global economy is recovering.

Gross domestic product rose a seasonally adjusted 3.3 percent in the second quarter from the previous three months, after dropping 4.3 percent in the first quarter, the government said today. The median estimate in a Bloomberg News survey of seven economists was for a 1.2 percent gain.

The Hang Seng Index has gained 84 percent from this year’s low in March as China’s record lending and 4 trillion yuan ($585 billion) stimulus package help the city, which is a hub for trade and finance. Hong Kong’s government raised its forecast for this year’s GDP to a contraction of between 3.5 percent and 4.5 percent today from a previous estimate of a 5.5 percent to 6.5 percent decline.

“This rebound has largely been ‘Made in China,’” said Brian Jackson, a senior strategist at Royal Bank of Canada in Hong Kong. “Exports to the mainland have picked up, while easy liquidity conditions there have contributed to recent gains in Hong Kong’s asset prices, providing a strong boost to Hong Kong consumers.”

The economy shrank 3.8 percent in the second quarter from a year earlier, after a 7.8 percent drop in the previous three months. The first-quarter contraction from the previous three months was the worst since data began in 1990.

‘Bumpy’ Recovery
The government cut its inflation forecast for the year to 0.5 percent from 1 percent.

Financial Secretary John Tsang said the economy will “hopefully improve further in the second half,” adding that the city can’t afford to be complacent because of uncertainties in the global economy.

The path of recovery will be “bumpy,” said government economist Helen Chan.

Across the Asia Pacific, South Korea and Australia have bounced back after economic contractions and Singapore has climbed out of a recession as the worst global slump since the Great Depression eases. In Europe, Germany and France unexpectedly emerged from recessions in the second quarter, according to reports yesterday.

In contrast, Spain’s economy shrank more than estimated last quarter, a report showed today.

Li Ka-shing
Billionaire Li Ka-shing, Hong Kong’s richest man, said yesterday that “the worst is over for the global economy” after his companies, Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., posted better-than-estimated first-half earnings.

“It’s too optimistic to say the global economy has reached a turning point,” Li added. “The degree of decline has shrunk but that doesn’t mean it has stopped shrinking.”

Li & Fung Ltd., which sells products to Wal-Mart Stores Inc. and Target Corp., was the biggest gainer in the Hang Seng Index today, rising 9.2 percent after reporting a better-than- estimated profit.

Declines in Hong Kong’s trade, consumption and investment all moderated in the second quarter.

Merchandise exports fell 12.4 percent from a year earlier after dropping 22.7 percent in the first quarter, the government said today. Household consumption dropped 1 percent after falling 6 percent. Business investment slid 14 percent, following a 13.7 percent decline.

“Hong Kong is showing positive and encouraging signs of a faster-than-expected recovery,” said Tao Dong, chief Asia- Pacific economist at Credit Suisse AG in Hong Kong. “Whether the recovery can be sustained depends on external factors.”

Stimulus Spending
The government has allocated HK$87.6 billion ($11.3 billion), or about 5.2 percent of GDP, since 2008 for stimulus measures ranging from tax cuts to rent subsidies.

Chief Executive Donald Tsang is unlikely to announce more relief measures in his October policy address, the South China Morning Post reported Aug. 11, citing people it didn’t identify.

“The need and urgency for fiscal stimulus has decreased,” said Kelvin Lau, an economist at Standard Chartered Plc in Hong Kong. He said policy makers may need to focus on preventing bubbles in stocks and property as money flows into the city, including from China’s record lending.

Hong Kong home prices may rise 32 percent by the end of 2010 on ample liquidity and low interest rates, UBS AG said last month. The Hang Seng Property Index, which tracks six of the city’s biggest developers, rose 57 percent this year, outpacing the 45 percent gain in the overall index.

Besides the fragility of the global economy, Hong Kong’s recovery faces challenges including a jobless rate at a three- year high of 5.4 percent. Swine flu also crimped tourist arrivals and spending during the quarter.

Lifestyle International Holdings Ltd., the operator of Hong Kong’s Sogo stores, said this month that consumers will be “very conservative about spending” for the rest of the year and subway operator MTR Corp. called the economic outlook “challenging.”

Disclosure: Author does not own any of the stocks discussed here.

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