Hong Kong: Monetary Statistics For March 20111 May, 2011, 14:49. Posted by Zarathustra
Tags: Economy, Hong Kong, Hong Kong Money Supply, Money Supply
Hong Kong Monetary Authority published the monetary statistics for March on Friday. Again, money supply (M1 and M2) are the numbers that I look at every month as it has close relationship with the home prices in Hong Kong.
M1 money supply dropped by 2.4% compared to February, while M2 increased by 0.9%. On a seasonally adjusted basis, Hong Kong dollar M1 dropped by 2.7% over the previous month. On the year-on-year basis, the down trend continues. M1 money supply was March 2011 is only 4.6% higher than that a year ago, while M2 in March 2011 was 7.4% higher than a year ago.
Source: Hong Kong Monetary Authority, Centaline
On the whole, the picture remains unchanged. The period of rapid monetary expansion in Hong Kong has ended, and credit expansion will be slowed accordingly. In fact, M1 money supply has now dropped by 14% compared to the peak on October 2010, and M2 has dropped by 7%. If money supply stays constant for the rest of the year (which it won’t), the year-on-year change of M1 will be –10% on September 2011, while that of M2 will be –1.3%. With the continuing trend of decrease in money supply, we might see the yoy change of money supply hitting negative sooner rather than later. Banks have increased mortgage rates twice over the last few weeks or so, a manifestation of the gradual increase of costs of funding as liquidity is leaving. As China’s credit tightening is spilling over to Hong Kong, the balance of the game is gradually shifting from focusing on what the Federal Reserve does to what the People’s Bank of China does.
The latest monetary statistics confirms my view that the property bull market is getting close to the end. I now expect overall home prices by the end of this year will likely be no higher than the beginning of the year, which is consistent with the lower bound of my base case forecast for the year of 2011.