Boston, MA -- (SBWIRE) -- 06/03/2013 -- While the property measures enacted thus far will likely result in considerably lower property transaction volumes over the coming months, we do not believe that a substantial sell-off is on the horizon. Instead, the real trigger for a correction in the market is more likely to be the eventual normalisation of interest rates, which will stretch the affordability of mortgage payments and negate rental profits. However, we believe that Hong Kong's property market boasts strong underlying fundamentals that will continue to support price appreciation over the long term.

On the back of the changes in our expectations towards the property market, we have similarly revised our real GDP growth forecasts. We now see real GDP growth coming in at 3.3% in 2013, up from a previous forecast of 2.5% . This remains marginally below consensus projections of 3.4%.

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The Qianhai-Hong Kong special economic zone will help to bolster Hong Kong's financial sector, and that the sector will continue to be one of the city state's main engines of growth. Additionally, Hong Kong's banks will see increased opportunities in the offshore yuan services sector, which will in turn help to cement its role as the leading global offshore yuan trading centre.

Contrary to some observers, we do not believe there to be any tightening of Hong Kong's political environment by Beijing. The economic significance to the mainland far outweighs any political considerations that the central government may have towards the city. Consequently, we expect Hong Kong to maintain its attractive business environment.

In addition to factors that we have identified within China's domestic economy, we look to Hong Kong for evidence of impending economic weakness on the mainland. On top of a reversal in the city's Purchasing Managers Index trajectory, a growing disparity between bilateral trade data recorded in China and Hong Kong suggest to us that the pickup in external demand for Chinese goods may not have been as solid as some market observers have suggested and that growth momentum may be starting to wane.

Key Risks To Outlook

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