03/27/2015
Hong Kong / Equities
Soaring property prices and a yawning income gap are frustrating Hong Kong’s young. But addressing these problems could hit corporate profitability.
Why are some of Hong Kong’s young so frustrated? From the point of view of an outside investor, Hong Kong’s economy seems to be doing well. But put yourself in the shoes of a young Hong Kong adult and you will see a different story: one of out-of-reach property prices and wide income inequality.
A young family earning a median household income of HK$24,000 per month needs to save 220 months for the down payment of an average 600 square foot flat. Public rental housing is also not an attractive solution since the waiting list now carries the names of 250,000 individuals, from just over 100,000 in 2007.
Meanwhile many of Hong Kong’s young adults have not benefitted much from the territory’s prosperity. Their unemployment rate is higher than the overall rate. And, they are also not as competitive as mainland counterparts when vying for the territory’s best jobs. There are many reasons for this, but just look at the numbers. The brightest 1% of China’s population already outnumber the city’s total population.
If property prices and income inequality are not dealt with, we see risk of a repeat of the Occupy protests. However, if property and wage policies are changed to tackle these issues, Hong Kong companies will take a hit in profitability.
Either way is not favourable for Hong Kong plays. We remain underweight on Hong Kong retailers, and prefer consumption plays with earnings from outside of Hong Kong. Similarly, we are cautious on Hong Kong’s retail property landlords. We also see limited upside for Hong Kong property developers given policy headwinds and risk of mortgage rate increases.
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