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The US Fed kept interest rates unchanged … how will it affect Hong Kong?

The US Federal Open Market Committee decided to keep interest rates unchanged in September, while signalling a rise before the end of this year. Here is a quick look on how the decision would affect Hong Kong.

Property

The availability of cheap money will spur Hong Kong’s developers to speed up their efforts to market new projects, taking advantage of a strong sales momentum, said Knight Frank’s head of valuation and consultancy Thomas Lam.

“Buying interest for new flats will continue to be strong over the next few months as interest rates remain low,” he said. “Home buyers will not be affected unless interest rates rise by more than two percentage points. That may not happen this year. The property market outlook is still determined by government policy and economic performance.”

Stock market

Mainland Chinese banks and Hong Kong’s property stocks are likely to rebound from last week’s slump.

Low interest rates in the US help Hong Kong’s high-dividend stocks the most, said Sinopac Securities’ research head Ivan Li Sing-yeung.

“Hong Kong’s stock market has priced in the possibility of a rate rise in December, therefore the market’s sentiment is more likely to be driven by China’s economy in the remaining months,” Li said.

Currency

Market watchers hold mixed views on how the Fed’s move will affect the US dollar and other major currencies.

“The meeting sets the stage for a December hike, which will support the US dollar, and limit any down side,” Bank of America-Merrill Lynch analysts wrote in their latest research report.

The slower pace of monetary tightening will limit any upside to the US dollar, as the magnitude of policy divergence continues to diminish with the Fed now only seeing two hikes in 2017 and three in 2018, the bank said.

Shaniel Ramjee, senior investment manager at Pictet Asset Management, expects the news to weaken the US dollar and improve the outlook for commodities and emerging markets including Asia.

Thomas Shik, Hang Seng Bank’s acting chief economist, said although the market consensus is for a rate rise in December, the possibility of a November move — when the US will elect its new president — should not be excluded, as the US economy is picking up.

As there is still room for the US dollar to strengthen, Shik maintains his forecast on the onshore yuan rate at 6.7 against the US dollar by year end.