22nd February 2024 – (Hong Kong) Hong Kong stands at a critical juncture, with lacklustre capital markets and depressed property sectors weighing heavily on economic vibrancy. However, swift and decisive action to restore asset values while strategically positioning Hong Kong’s unique strengths can reignite growth and shore up its future. Learning from missteps, Hong Kong can propel a resilient rebound if authorities instill confidence where it counts.

As an international financial hub, Hong Kong’s stock market has lagged global peers for years now, sapping investor enthusiasm. Meanwhile, the property sector shows no recovery signs, further eroding asset prices and confidence. With finance and real estate both languishing, the spillover on other sectors has been palpable.

Compounding matters, consecutive budget deficits over HK$100 billion pressure government coffers. Lingering U.S.-China tensions could eventually unleash financial warfare with potentially devastating implications given Hong Kong’s economic frailties. Preserving the Hong Kong dollar peg may prove challenging if significant financial shocks emerge.

Stabilizing share and property prices now is thus critical for reversing negative wealth effects dragging on consumption and investment. Hong Kong cannot withstand further erosion of household and corporate resilience. Nor can the government’s fiscal position tolerate extended debt-financed deficits.

Urgently needed are stimulative steps to reinvigorate financial flows and transactions. No time can be lost if Hong Kong aims to sustain its stature amid intensifying regional competition. With citizens, businesses and public finances all increasingly fragile, the window for effective intervention is closing.

Mirroring economic malaise, Hong Kong’s Purchasing Managers Index (PMI) has steadily deteriorated since hitting 53.9 in February 2022, remaining below the 50-neutral mark in January 2023. Export and financial services face persistent strain, with capital markets turned frigid by departing international investors, wounded local players and distracted Chinese entities.

Resulting risk aversion leaves Hong Kong wallowing with a sub-15,000 Hang Seng Index, dismal transaction volumes, depressed price-earnings ratios and negligible IPO activity. Collapsed deal-making and listings sap financial sector vitality with spillovers into related realms like commercial real estate now also hurting.

Adding insult, relentless property market declines reveal policymakers failed to heed repeated warnings to unwind counterproductive cooling measures sooner. With home prices still spiralling downwards, developers are logically halting land purchases given rising mortgage rates and supply backlogs. Consequently, government auctions are witnessing mass desertion, with willing buyers only secured through bargain pricing.

This refusal to arrest property price deflation has directly contributed to the budget crunch. Yet rather than tackle the root cause, officials distract themselves by staging ticketed events offering no recurring income streams or economic stimulus. Reluctance to confront hard truths risks allowing Hong Kong’s engines of prosperity to grind towards complete stall speed.

With global conditions inhospitable, Hong Kong must focus within by shoring up its pillars of financial services and property markets, which remain cornerstones of economic capacity. Stocks and housing still constitute the population’s principal investments and assets. Their synchronised slump has thus pummeled disposable incomes and balance sheets.

Ongoing asset price depression also bodes ill for financial stability. While bureaucrats nonchalantly accumulate more expensive debt, markets know such fiscal recklessness cannot persist indefinitely without consequences. Eventually, citizens will be left carrying the costs of policy mismanagement.

The only credible path forward requires urgent, unconstrained efforts to stabilize valuations across key asset classes. This demands attracting back investors and transactions through tactical market reinvigoration. Creating a climate for capital flows and deal-making to regain momentum will bolster financial services, which remain Hong Kong’s advantage.

In tandem, risks tied to overleveraged Chinese developers must be transparently addressed before sentiments can bottom. Lenders working constructively to limit fallout deserve regulatory assistance. Sector uncertainty partially stems from opacity, thus enhancing openness will be restorative.

Alongside financial and property market fortification, budget recalibration is essential for responsible governance. Once conditions improve sufficiently, cooling measures must be retired with land auction restarting. Replenishing fiscal reserves requires restoring revenue channels compromised during the downturn.

This may entail politically difficult but economically essential steps like reviewing stamp duties and considering sector-specific taxes. All options to broaden revenue streams in an equitable, efficient and transparent manner need open-minded appraisal. Such revenue diversification will give Hong Kong financial latitude again to be visionary with development policies. Rival business hubs like Singapore deploy targeted investment incentives Hong Kong should emulate. Nothing less than maximum effort is justified to reignite the innovativeness that made Hong Kong exceptional.

With wisdom and resolve, pragmatic recalibration to generate sustainable incomes and harness innate capabilities can return Hong Kong towards shared prosperity. The city has confronted crises before and can do so again if its stewards demonstrate responsible governance benefiting all citizens. Though the path is steep, a reinvigorated Hong Kong true to its heritage awaits at the summit.