Hong Kong: Monetary Statistics For February 201131 March, 2011, 18:03. Posted by Zarathustra
Tags: Economy, Hong Kong, Hong Kong Money Supply, Money Supply, Property, Real Estate
Hong Kong Monetary Authority just released the February Monetary Statistics. The numbers I pay the most attention are, of course, M1 and M2 money supply. On an month-on-month basis, both M1 and M2 (HKD) dropped slightly in February, while the year-on-year changes are more or less stable.
The narrow Hong Kong dollar M1 money supply decreased by 1.4% on an non-seasonally adjusted basis, or 0.7% on an seasonally adjusted basis. The broader M2 money supply decreased by 1.7% compared to January. On an year-on-year basis, M1 money supply rose 10.1% in February, vs. 14.1% in January, while M2 money supply rose 8.0% over a year ago, vs. 9.8% in January. While the growth in money supply is still quite fast, the growth rate is now more reasonable compared to the peak in September of 2009, when M1 money supply rose 55% compared to the same month in 2008. Also note that Hong Kong dollar deposits contracted 1.6% over the month, while Chinese Yuan a.k.a. renminbi deposits rose 10%.
Again (in case you don’t know why I monitor money supply figures so closely), property prices in Hong Kong have been very driven by liquidity. Below are the charts of the year-on-year percentage changes of money supply and home prices.
Source: Hong Kong Monetary Authority, Centaline
The general trend is clear: money supply is not growing as fast as before. In fact, HKD M1 has already dropped 12% compared to the peak in October 2010, and HKD M2 has dropped by 8% compared to October 2010. If the money supply stays constant for the next 6 months or so (which it won’t), the year-on-year change will hit a negative number by September 2011, and that would suggest that the bull market for the Hong Kong property market will be finished by the end of this year or early next year.
However, this might be an optimistic view. Note that China’s monetary and credit tightening is spilling over to Hong Kong as China’s enterprises scrambled to Hong Kong to borrow. This will continue to drain liquidity away from Hong Kong, decreasing the money supply. That will bring the end of the property bull market forward by a few months to the third or fourth quarter this year.
Whenever the end is, this is now the beginning of the end of the Hong Kong property bull market.