In a recent interview with CNBC, Hong Kong's Financial Secretary, Paul Chan, pre-emptively warned of potential volatility in 2024 brought on by various external challenges. Among the factors he pointed out that could contribute to this instability are higher interest rates, geopolitical tensions, and the impending U.S. elections.
Post-Covid Economic Recovery
Despite experiencing a less than stellar post-Covid economic recovery, much like mainland China, Chan remains positive regarding China's economic future. He anticipates a steady growth trajectory as the nation's focus shifts towards high-quality development. This optimism is backed by China's 2023 growth target set at around 5% and the International Monetary Fund's (IMF) projection of 5.4% growth for China in 2023. However, the IMF anticipates a slowdown to 4.6% in 2024, citing weaknesses in the property market as the primary reason.
Moody's Downgrade: Unfair for Hong Kong?
Despite recent negative outlook downgrades by Moody's for both China and Hong Kong, Chan stands firm in his belief that the downgrade for Hong Kong is unjust. He posited that the city's economy is starting to show signs of significant improvement, drawing attention to the primary growth drivers - services, exports, capital investments, and consumption. The third quarter of 2023 saw a substantial increase in Hong Kong's exports of services and a recorded growth of 4.1%. The IMF foresees Hong Kong achieving a 4.4% real GDP growth.
Relevant Factors for 2024 Volatility
The BlackRock Investment Institute (BII) has echoed Chan's warning, predicting entrenched inflation leading to greater volatility in the coming years. BII suggests that this macro volatility will result in a wide dispersion in returns, presenting challenges for investors. Teneo's geopolitical risk team also highlighted the global shifts and localized hotspots where tensions are most likely to escalate in 2024. Such shifts and tensions can indeed have profound impacts on global security and, consequently, economic stability. Lastly, the Bank of Canada's decision to maintain its overnight lending rate at five percent could also impact the bond market, further influencing the potential volatility in 2024.