Some News in the Financial Market: 26/02/2024 – 03/03/2024
Some News in the Financial Market: 26/02/2024 – 03/03/2024
Writer: Klinsmann Lee
China’s manufacturing activity continues to contract [1]
Background:
China’s official manufacturing purchasing managers’ index (PMI) stood at 49.1 in February 2024.
China’s PMI has been in contraction territory for five consecutive months.
Fundamental economic problems such as a slowdown in the property sector, deflation and poor investor sentiments are depressing business and consumer confidence.
Beijing is expected to set a GDP growth target of 5% for 2024.
However, the PMI index for February 2024 may be a less reliable indicator of economic health due to the Lunar New Year Holiday (fewer working days).
Klinsmann’s Analysis:
Purchasing Managers’ Index is “an index that measures the month-over-month change in economic activity within the manufacturing sector”. [2]
The PMI reading ranges from 0 to 100. A PMI reading below 50 indicates contraction territory. A PMI reading above 50 indicates expansion territory.
With a lack of decisive and major economic stimulus, the underlying economic problems such as weak property market, depressing financial market and lack of business confidence will be a barrier to China achieving its GDP target for 2024.
A major economic stimulus, such as the four trillion-yuan fiscal package in 2008 to minimise the impact of the global financial crisis, may not be feasible because of the high debt level and the negative economic consequence from further credit expansion.
Hong Kong Government remove property taxes to stimulus property market [3]
Background:
To boost its real estate market, Hong Kong will cancel all buy-side restrictions for residential homes and stamp duties on property transactions.
Removed property taxes include:
7.5% stamp duty on buyers who are not permanent residents in the city.
7.5% stamp duty on those purchasing a second home.
10% - 20% stamp duty on those who sell their homes within two years of the purchase.
These taxes were introduced in 2010 as countermeasures to the hot property market.
Hong Kong’s economy has failed to regain momentum since it opened from covid restriction. The anticipated growth in tourism and consumption did not materialise.
Klinsmann’s Analysis:
Taking some actions is better than taking no actions.
I believe these measures will help stimulate the housing market in the short term as buyers and investors take opportunities in the property market.
This measure creates two opposing effects.
On one hand, this will negatively impact the tax revenue collection for the Hong Kong Government.
On the other hand, a confident and optimistic property market will help generate further land sales. This will positively impact land revenue for the Hong Kong Government.
The net impact of this measure is something I look forward to observing in the future.
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