Friday, February 10th, 2012

The Recession is Over! In Hong Kong

PERSONAL NOTE FROM JIM:

As I have predicted, China will lead the world out of the recession. Each and every day there are more signs that I am spot on with my assessment. The Shanghai Composite Index is rising faster than opposition to Obama’s new health care plan, and here is the latest from Hang Seng Index. Take a look at the amazing numbers coming from Hong Kong.

The latest economic numbers from Hong Kong indicate that the recession is over for China’s historically aggressive Special Administrative Zone (SAZ). Hong Kong’s gross domestic product rose a seasonally adjusted 3.3 percent in the second quarter from the previous three months, after plunging 4.3 percent in the first quarter, the zone’s government announced today.

Until now, Hong Kong had lagged behind mainland China, which has not shown negative GDP growth for decades. Hong Kong’s recovery faces challenges including a jobless rate still at a three- year high of 5.4 percent. As a global trading hub and international business center, Hong Kong also depends on improvement in the global economy to resume its booming ways.

Hong Kong’s recession lasted for about a year. It is a measure of the zone’s confidence that Chief Executive Donald Tsang is reported to be unwilling to announce new relief measures for the city-state in his October policy address, that according to the South China Morning Post Previously the government had allocated $11.3 billion for stimulus measures ranging from tax cuts to rent subsidies.

The rebound in the Hong Kong economy surprised many economists. In a survey by Bloomberg, the median estimate in a survey of seven economists was for a 1.2 percent gain in GDP for the second quarter. The latest numbers are more than double economists’ expectations.

China Stock Digest subscribers have a stake in the Hong Kong economy through an Index Fund, an ETF which aims to capture 85% of the total market capitalization of the Hong Kong equity market. Our gains on this fund have been marginal since we bought it less than a month ago. But the latest data should contribute to a bullish trend in the Hang Seng Index.

Hong Kong’s richest man, billionaire Li Ka-shing, says the worst is over for the global economy. Li’s companies, Cheung Kong and Hutchison Whampoa, recently posted better-than-estimated first-half earnings.

UBS predicts that Hong Kong home prices may rise 32 percent by the end of 2010 as a result of ample bank liquidity in the region and low interest rates. The Hang Seng Index is heavily weighted with property development companies and this rise may be reflected in our ETF.

Much of the future for Hong Kong depends on China. As an intermediary between mainland China and the world, Hong Kong relies partly on Chinese economic growth to fuel its economy. As we have reported, China’s GDP growth has exceeded expectations.

Hong Kong also relies partly on global economic recovery. Although some Pacific Basin nations, especially Singapore and Australia have emerged from recession, largely on the strength of China’s recovery, the outlook for western nations remains unclear.

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