7. The Hang Seng index of stock exchange prices rose from 1,279 at the end of June to 1,313 in mid-July, but has fallen almost continuously (with something of a rally in early November) to stand at just over 700 at the end of November. The index is dominated by property companies whose earnings have been seriously affected by weakness in rents and property prices over the last year.
In a sense this is simply the effect of over-expansion of supply in the recent past (which is leading at present to a cut-back in private sector building activity). Banks and DTCs may be put under pressure to some extent as a result of earlier lending to property companies.
8. To the extent that earnings of publicly-quoted manufacturing industries have been affected by export market recession, there will have been some impact on the stock market. Current uncertainty about the future has undoubtedly led to falls in share prices, all the more strongly in a market where rumour has always had a powerful impact.
Prices
9.
Declines in property prices and rents have contributed to a fall in the inflation rate which is around 10% p.a. now. The current weakness of the HK$ may lead to a reversal of this downward trend.
The labour market
10.
The seasonally adjusted unemployment rate increased from 3.1% in December 1981 to 3.4% in June and there are indications that it has risen since. The fall in manufacturing employment means that the reluctance of employers to sack workers during the early stages of a cycle of falling orders seems to have been overcome. wages are no longer increasing.
Comment
Real
11. There is a tendency to over-emphasise the importance of stock exchange performance in a view of the Territory's prospects. It is a volatile market, and as noted above is suffering from the after- effects of a property boom, which largely propelled the Hang Seng index to earlier heights.
12. The real problems of Hong Kong come from continued recession in export markets. The future of the export sector will be adversely affected by any loss of confidence which leads to lower levels of investment in the Territory, particularly investment for technologically-advanced products.
1 December 1982
Nick Hallett
N O Hallett ESID WH403A
233 5335