Finance Blog number 1

New Zealand’s central bank kept its benchmark interest rate at a record low as the nation recovers from the most devastating earthquake in 80 years, sending the country’s currency lower.

“The outlook for the New Zealand economy remains very uncertain,” Governor Alan Bollard said in a statement today in Wellington after leaving the official cash rate at 2.5 percent. “Given the outlook for core inflation and continued economic disruption from the earthquakes, the current level of the cash rate is likely to remain appropriate for some time.”

Bollard has scope to leave borrowing costs unchanged until late this year because economic growth is forecast to be as slow as 0.8 percent and price increases have been slower than forecast. He cut the key rate by half a percentage point in March after earthquakes in the southern city of Christchurch hurt consumer confidence and spending.

“Growth is coming from an extremely weak starting point,” Dominick Stephens, chief economist at Westpac Banking Corp. in Auckland, said before the release easy payday loans. “The pace of recovery from the recession has been tepid so far. There is still a lot of slack in the economy relative to its potential.”

The New Zealand dollar declined after Bollard’s decision and his statement that the economic outlook “remains very uncertain.” The currency slid to 80.45 U.S. cents as of 9:03 a.m. in Wellington from 80.80 cents just before the announcement.

“Higher oil prices and the elevated level of the New Zealand dollar are both unwelcome,” Bollard said. “They will have some dampening effect on economic activity.”

The currency is being buoyed by demand from carry traders who borrow in countries with low interest costs to fund purchases in markets with higher yields. They are seeing returns rebound from two-year lows as the U.S. Federal Reserve and Bank of Japan show no urgency to tighten monetary policy.

Source

Long before the sun rises and long before consumers are thinking about meals or deals, emails starting flooding inboxes.

Get 20 yoga classes for 20 bucks. Manicures and massages. Discounts for everything you can imagine, from car detailing to teeth whitening to zip-line adventures.

The question is whether this type of marketing is sustainable, with merchants offering deep discounts, usually at more than 50 per cent off. Websites keep cropping up. There are now estimated to be 35 in the Toronto area; several more are in the works.

Consumers have to act quickly; the deals usually stick around for only a day or so. Some sites pay cash or credits for referrals through social media like Facebook or Twitter, thus pushing the group buying frenzy.

Big bucks are at stake. Groupon spurned a $6 billion offer from Google last year, aiming instead at an IPO.

Amazon.com Inc. invested $175 million in LivingSocial, a Groupon competitor.

The question is whether these sites are a fad, and will eventually go the way of MySpace and Napster.

Marlon Pather, owner of The Butchers at Yonge and Eglinton, doesn

A new language can be heard on the slopes of this popular ski resort in northern Japan: Chinese.

Foreign tourists and investors have flocked to scenic Niseko in recent years, giving this rural region a badly needed economic jolt. It is a rare success story that, if replicated, could help lead Japan out of two decades of stagnation.

Australians were the first to arrive in the early 2000s, followed by skiers from Hong Kong, Singapore and elsewhere in Asia. Mainland Chinese, while still relatively few, are the latest _ and potentially the biggest _ wave.

“This place has so much potential. It’s such a nice break from the chaotic situation in China,” Guy Cui, a 48-year-old Beijing resident in the financial industry, said as he stepped out of a spacious, modern cabin and squinted in the sunlight.

Last year, he came with 25 friends and relatives over the Lunar New Year holiday. This year, the group swelled to 52. “This is the trend of the future,” Cui predicted, prompting a friend to joke that Niseko will be overrun with Chinese in 10 years.

In some ways, what’s happening here is a reversal of roles: 20 years ago, Japan was dispatching rich tourists and buying up trophy real estate around the world, prompting people to worry that Japan Inc. would take over the world. Now, Japan’s growing dependence on China and other newly wealthy neighbors is creating some consternation at home.

“It’s rather like the American fear of the Japanese in the late ’80s. It’s fear of these rich outsiders coming in and dominating,” said Alex Kerr, an author and sustainable tourism consultant in Japan. “That’s what happens when a country that thought of itself as the unquestioned dominating leader suddenly discovers that there are others with more money.”

Japan has set the ambitious goal of tripling its number of foreign tourists from 8.6 million last year to 25 million by 2020. With its population shrinking and economy flat, Japan must open up to trade, investment and tourism, Prime Minister Naoto Kan declares, if it is to reverse a slow decline. But it’s a tall order in this historically insular country.

Foreigners account for about half the hotel nights in Niseko during the winter, and they’re snapping up condominiums too. Major developers from Hong Kong and Malaysia plan to turn the place into an Asian Whistler, the Canadian ski resort.

Residents welcome the new money but worry about overdevelopment, the environment and, in particular, China’s rise.

Japanese media have played up Chinese purchases of forest land around Niseko, spurring rumors that the buyers plan to strip the hills of lumber and drain the streams of water _ fears that appear to be unfounded.

“We’re not sure who’s doing what with that land,” said Yukio Yamamoto, a Niseko native whose house now stands in the shadow of sleek holiday condominiums. “We want people to come here to the community and invest in it and care for the land.”

___

Set amid rolling hills on the island of Hokkaido, Niseko has plenty going for it: hot springs, clean air, fresh seafood, stunning views of Mount Yotei _ an extinct volcano that resembles Mount Fuji _ and 45 feet (14 meters) of powder snow a year, one of the highest levels among resorts worldwide.

It was popular among Japanese during the country’s economic heyday, but went into decline after domestic skiing peaked in the early 1990s. Now, the main village of Hirafu has morphed into a bustling hodgepodge of condominiums, cabins and pubs with a distinctly international feel.

In early February, the place was swamped with families from the Chinese-speaking world, particularly Hong Kong, for the Lunar New Year, marked with fireworks at the base of Mount Annapuri.

Property agents say Hong Kong and Singapore buyers account for 70-80 percent of condominium and land purchases, with interest emerging from Malaysia and mainland China. Japanese developers are largely absent, still gun-shy from an early 1990s property market collapse.

“The Japanese are complacent,” said C.J. Wysocki, a Hong Kong-based American lawyer for GE’s aircraft business. He built an apartment building with 10 units in Hirafu and sold several to wealthy Asians. “The foreigners are the ones who are saying this place is amazing, it needs to be preserved.”

Foreign tourists spent nearly 200,000 hotel nights in area accommodations last winter, up from just 7,800 eight years ago, according to the Niseko Promotion Board, which has hired Korean and Chinese speakers to field questions and maintain its foreign language websites.

Mainland Chinese visitors accounted for 6,100 nights and are expected to top 40,000 within five years, said Tomokazu Aoki, the board’s deputy administrative director.

Hokkaido has seen a spike in Chinese visitors after the 2008 hit movie, “If You Are the One,” which introduced the island’s rugged beauty to Chinese viewers.

They aren’t big skiers yet _ most hopscotch the island on bus tours to hot springs, lakes and discount shopping centers. But the sport is catching on _ 20 million now ski, up from 5 million a couple of years ago, the China Ski Association estimates _ and demand for resort vacations is expected to increase.

“The wealth will grow, the skiing population will grow, people will want to be more international,” said Thomas Liu, a Hong Kong native who lives in Beijing and came to ski with his family.

Malaysia’s YTL Corp. bought one of Niseko’s four main ski areas, including the Niseko Hilton, for $66 million last year. Pacific Century Premium Developments, the real estate arm of Hong Kong businessman Richard Li’s PCCW, bought the nearby Hanazono Resort in 2007.

Both plan upscale condominiums and villages with boutiques and fine dining to remedy the lack of shopping that is essential to drawing Asian tourists.

“Niseko is such a natural destination for what we call new wealth,” said Francis Yeoh, the managing director of YTL, who likened Niseko’s potential to the beach resorts of Bali in Indonesia or Phuket in Thailand.

Source

Libyan diplomats at the United Nations in Geneva declared they were defecting to the opposition Friday, delivering another blow to Moammar Gadhafi’s flailing regime as international pressure built over his violent attempt to cling to power.

French President Nicolas Sarkozy called on the long-time leader to step down, demanding during a visit to Turkey that Gadhafi “must go,” and calling for an investigation and sanctions against the regime and those who continue to do business with it.

In a dramatic scene at an emergency meeting of the U.N. Human Rights Council, a senior diplomat with the Libyan delegation to the U.N. in Geneva asked the council to stand for a moment of silence to “honor this revolution” _ and then informed the council the entire mission was quitting the government. Council members gave them a standing ovation.

“The young people in my country today, 100 years after the Italian fascist invasion, are today with their blood writing a new chapter in the history of struggle and resistance,” Shaltut told the 47-nation council.

“We in the Libyan mission have categorically decided to serve as representatives of the Libyan people and their free will. We only represent the Libyan people,” he said.

Libya’s top diplomat in Sweden joined the rebellion against Gadhafi, telling The Associated Press he could not accept the “massacre against my own people.” Abdelmagid Buzrigh, the charge d’affaires at the Libyan Embassy in Stockholm, said, however, he would not step down, because he felt he was serving everyday Libyans.

The resignations come after the U.N.’s top human rights official warned that mass killings in Libya, possibly of thousands, require the world to “step in vigorously” and immediately end a brutal crackdown on anti-government protesters in the North African country.

The U.N. high commissioner spoke with the most urgency yet by a U.N. official, citing estimates that thousands may have died at the hands of Gadhafi’s security forces, possibly amounting to crimes against humanity.

“The crackdown in Libya of peaceful demonstrations is escalating alarmingly with reported mass killings, arbitrary arrests, detention and torture of protesters,” Navi Pillay said during the human rights council’s daylong emergency meeting. “Tanks, helicopters and military aircraft have reportedly been used indiscriminately to attack the protesters. According to some sources, thousands may have been killed or injured.”

Diplomats debated whether to call for Libya’s ouster from the council, in what would be an unprecedented suspension of one of its own members. It will also decide whether to heed Pillay’s call for an independent U.N.-led probe of abuses in Libya.

It was only last May that the former U.S. enemy, Libya, was elected to the Geneva-based body as part of a series of attempts at political rehabilitation on the world stage.

European nations were leading the effort to condemn Gadhafi’s regime that has ruled for 42 years but now appears to have lost control of large parts of the country.

“The world is watching you, the world will hold you to account,” British Prime Minister David Cameron told reporters Friday, referring to Gadhafi’s regime. “International justice has a long reach and a long memory.”

Russian President Dmitry Medvedev said in a statement on Friday that Libya must not be allowed any “further exacerbation of the situation, the destruction of the civilian population.” It is the Kremlin’s strongest criticism yet of Libya.

It is the first time that the Geneva-based council has held a special session to scrutinize one of its members.

Nigeria and China were among those who condemned the violence but rejected the call to suspend Libya from the council.

Pakistan’s ambassador, Zamir Akram, said the 57 members of the Organization of the Islamic Conference “strongly condemn the excessive use of force” in Libya.

Also Friday, a Paris-based Libyan official said Libya’s ambassadors to France and to the U.N. cultural and education organization UNESCO had quit.

Gadhafi’s response to the uprising in his country has been the harshest by any Arab leader in the wave of protests that has swept the Middle East recently, toppling the presidents of Libya’s neighbors Egypt and Tunisia.

Suspending Libya’s “rights of membership” under the rules for the council would require two-thirds approval of all the 192 countries in the U.N. General Assembly in New York. Human rights activists said they expect a strongly worded resolution to pass at the council, though it might be watered down by efforts to achieve the broadest possible consensus.

While efforts to ostracize Libya from the council are being driven by Europe, the United States and some Latin American countries, Asian and African nations will be wary of setting a precedent that can be used against them or their allies in future, said Peter Splinter of Amnesty International.

“This is a test of the council and the willingness of some of its more active members, such as Pakistan, South Africa, Cuba, Saudi Arabia, to take a principled stand on human rights,” he said.

In Brussels, NATO was holding an emergency meeting Friday to consider the deteriorating situation in Libya. It had received no requests to intervene and said it would only do so if it were given a United Nations mandate.

The U.N. Security Council also planned to meet later Friday in New York to consider actions against Gadhafi’s regime.

French Foreign Minister Michele Alliot-Marie said France and Britain would press the Security Council for a “total embargo on weapons as well as sanctions, and also the referral of a case to the International Criminal Court for crimes against humanity.”

____

Associated Press reporters across Europe contributed to this report.

Source

A tight hold on expenses helped Macy’s Inc. increase its fourth-quarter net income by 50 percent, but the department store operator said Tuesday that it will raise some prices to contend with rising costs.

The Cincinnati company’s price hikes do not come as much of a surprise, though. Many clothing sellers, including Abercrombie & Fitch and Brooks Brothers, either already have increased spring prices or said they will hike prices soon.

Macy’s, which operates the Bloomingdale’s and Macy’s chains and their websites, remains upbeat on its prospects for the year, forecasting 2011 earnings in a range that includes analysts’ average estimate.

Its stock fell 56 cents, or 2.4 percent, to $23.19 in midday trading.

For the fourth quarter, Macy’s earned $667 million, or $1.55 per share. It posted net income of $445 million, or $1.05 per share, a year earlier.

Adjusted earnings for the period that ended Jan. 29 were $1.59 per share. That excludes charges of 4 cents per share for store closing expenses and to reflect the declining value of some assets.

By comparison, analysts polled by FactSet predicted Macy’s would post adjusted earnings $1.51 per share, and Macy’s forecast $1.44 to $1.49 per share.

Chief Financial Officer Karen Hoguet said during a conference call that selling, general and administrative expenses of approximately $2.25 billion were slightly higher than a year earlier but were better than expected. She credited expense controls, property tax settlements and year-end adjustments.

Macy’s performance is important because it can serve as a barometer of spending by middle- and upper-income shoppers. The company is the second-largest department store operator behind Sears Holdings Corp. Sears will report its earnings results on Thursday.

Quarterly revenue rose 5 percent to $8.269 billion, narrowly missing Wall Street’s average forecast for $8.277 billion.

A key metric _ revenue at stores open at least a year _ fared better, rising 4.3 percent. This comparison is an important gauge of a retailer’s health because it excludes stores that opened or closed during the year.

The figure got a 1.1 percentage-point boost from an increase in online sales of 29.1 percent for the quarter.

Faster-than-expected online growth prompted Macy’s to speed expansion of a distribution center and start construction on a fourth fulfillment center, Hoguet said.

Macy’s has picked up market share from competitors in part by tailoring stock in each store to its region and by placing more emphasis on exclusive brands such as Material Girl from Madonna and her daughter Lourdes. Hoguet said that the company gets about 43 percent of its business from private, exclusive and limited distribution brands.

Macy’s is looking at raising some prices, but Hoguet explained that the retailer is able to add certain features and fashion details to products that allow it to charge higher prices.

She also noted that “a significant portion of our business is in categories that are not impacted by the escalation in raw material prices.”

Still, Hoguet said Macy’s is implementing a number of strategies to deal with pricing concerns, including working closely with its vendors to increase efficiencies.

Hoguet said the company will test and monitor price increases in the spring.

Looking at the full year, Macy’s net income more than doubled to $847 million, or $1.98 per share, This compares with $329 million, or 78 cents per share, in the previous year.

Adjusted earnings increased to $2.11 per share from $1.36 per share.

Annual revenue climbed 6 percent to $25 billion from $23.49 billion.

For fiscal 2010, revenue at stores open at least a year increased 4.6 percent _ the best performance in at least 15 years. The results were also well above Macy’s forecast for a 1 percent to 2 percent rise. Online sales gained 28.7 percent for the fiscal year.

“Fiscal 2010 was a very successful year for Macy’s and Bloomingdale’s based on a combination of strong sales, steady margins and continued expense discipline,” Chairman, President and CEO Terry Lundgren said in a statement.

Macy’s forecasts fiscal 2011 earnings between $2.25 and $2.30 per share. This assumes a 3 percent hike in revenue at stores open at least a year. The company also expects its annual revenue to rise about 3 percent, which implies total revenue of approximately $25.8 billion.

Analysts expect full-year net income of $2.27 per share and revenue of $25.7 billion.

Macy’s runs about 850 Macy’s and Bloomingdale’s department stores in 45 states, the District of Columbia, Guam and Puerto Rico and four Bloomingdale’s outlet stores.

Source

The federal government is on the hot seat for allowing Internet service providers to impose usage limits and charge extra for customers who exceed them.

The issue came to a head last week, when the Canadian Radio-Television and Telecommunications Commission denied independent service providers the right to continue offering unlimited Internet plans.

Industry Minister Tony Clement issued a statement this week, saying he

Looks like the new year brought no change for the Federal Reserve.

In its first meeting of 2011, the central bank said it remains cautious about the economic recovery. It decided to leave interest rates unchanged near historic lows and continue with its $600 billion bond buying program to stimulate the economy.

"This is the same language," said economist Robert Brusca with FAO Economics. "The language of disappointment from the Fed."

The anticlimactic decision was unanimous among all 11 members of the Fed’s voting committee, including the four newest voters.

It’s no shocker that the Fed would stand pat on the fed funds rate, which has remained at historic lows near zero since 2008.

When the central bank first announced its bond buying policy, known as quantitative easing last November, the Fed promised to reevaluate as necessary.

And with a few more hawkish voting members rotating in this year, some had questioned whether the Fed would proceed full speed ahead.

Several of the new voting members are considered inflation hawks, and have publicly spoken out against quantitative easing, fearing that the flood of easy money could lead to rising inflation. Among them, Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher are the most vocal.

Prior to Wednesday’s meeting, Fed watchers speculated as to whether either Fisher or Plosser would take a formal stand, officially dissenting at the meeting.

But neither one did.

"It’s one thing to be vocal, it’s a completely different thing to cast a vote against the chairman," Brusca said.

Perhaps the most vocal inflation hawks decided it wasn’t appropriate to dissent at the first meeting of the year.

"You could lose your credibility and become a clank. Or, you can wait until you really have something to dissent over," Brusca said.

On last year’s voting roster, only one member — Kansas City Fed President Thomas Hoenig — dissented officially, and did so at all eight meetings of the year, speaking against the Fed’s policy of keeping interest rates low for an "extended period."

A delicate balancing act

In moving ahead with quantitative easing, the Fed is attempting to meet both its job responsibilities: to keep prices stable and maximize employment.

While the object of the policy is to get more money into the economy and stimulate growth to create jobs, it comes at the risk of higher prices. But with inflation pressures remaining low, the Fed sees little danger in pursuing more monetary stimulus.

"Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low," the Fed said in its official statement.

Since the recession, the central bank has struggled, however, to significantly bring down the unemployment rate, which currently sits at 9.4%.

Some critics — including some Fed members — have recently warned that accommodative monetary policy could devalue the dollar and fuel inflation at a time when the economy is already improving.

The Federal Reserve’s voting body is currently made up of eleven members: Chairman Ben Bernanke, five Fed governors, the president of the New York branch and four regional bank presidents who rotate each year.

One Fed governor position — which would bring the voting total up to 12 — remains unfilled.  

Source

BOSTON — FrontPoint Partners, a $7.5 billion (U.S.) hedge fund currently embroiled in the U.S. government’s fast-moving insider trading probe, has been asked to return $3 billion to its investors.

“The deadline for year-end redemptions has elapsed and we have received approximately $3 billion in total redemption requests,” FrontPoint co-chief executive officers Dan Waters and Mike Kelly said in a letter sent to investors Friday.

Reuters obtained a copy of the letter.

A spokesman for FrontPoint declined to comment.

About half of the redemption requests were related to FrontPoint’s healthcare portfolios, which executives decided to liquidate. The portfolios were allegedly at the heart of one of the government’s probes, people familiar with the matter said.

Investors in those portfolios have already received their money back, the FrontPoint executives said in their letter.

Investor redemptions at other FrontPoint strategies, however, underscore just how nervous pension funds, endowments and wealthy individuals have become about the whiff of trouble. This week the probe picked up speed when federal agents raided three hedge funds, sent subpoenas to other fund managers, and arrested one executive at a so-called expert network company.

FrontPoint, which offers more than a dozen portfolios to investors, expects to start 2011 with roughly $5 billion in assets, down from $11 billion before the financial crisis, the letter said.

FrontPoint’s biggest star is Steve Eisman, who made millions by anticipating the housing market collapse long before anyone else did free business cards. Eisman became something of a celebrity in the $1.7 trillion hedge fund world after he was featured prominently in journalist Michael Lewis’ best-selling book The Big Short, which chronicles how a savvy group of traders capitalized on the crisis.

Greenwich, Connecticut-based FrontPoint was acquired by investment bank Morgan Stanley in 2006 and is now being spun off. A Morgan Stanley spokeswoman declined to comment on the redemptions.

Earlier this month, federal authorities arrested Yves Benhamou after charging that he had illegally passed on inside information to a hedge fund manager about Human Genome Sciences Inc in 2008.

Benhamou, a French doctor, was overseeing a clinical trial for the biotechnology company and was also consulting with hedge fund managers who specialized in selecting healthcare stocks.

While neither the hedge fund nor the manager was named in the government’s case, people familiar with the matter said it was FrontPoint and Joseph “Chip” Skowron, a co-portfolio manager at its healthcare funds. FrontPoint put Skowron, who earned his medical degree at Yale, on leave the same day the government announced its charges against Benhamou.

The arrest of Benhamou and Don Ching Trang Chu, a former executive at an expert-network firm, suggest that the government is probing exactly how hedge funds interact with these types of industry consultants.

Source

General Motors’ stock rose the second day it traded as it rebounded from an early swoon.

The automaker’s stock climbed 7 cents, or 0.2 percent, to close at $34.26 on Friday, one day after it began trading on Wall Street again, signaling the rebirth of an American corporate icon that collapsed into bankruptcy and was rescued with a $50 billion infusion from taxpayers.

As trading began Friday, GM’s stock dropped $1.08 to $33.11 as investors sold it to lock in profits. But buying returned and gradually lifted the stock until it passed Thursday’s closing price of $34.19 near the end of the day.

GM stock was traded more than 107 million times, less than one-quarter of the volume traded on Thursday.

As the stock fell, bankers who managed GM’s initial public offering probably asked their larger investors to start buying so it wouldn’t fall below Thursday’s IPO price of $33 per share, said Peter Henning, a law professor at Wayne State University and former attorney with the U.S. Securities and Exchange Commission.

A drop below $33 could anger customers who were persuaded to buy the stock in the IPO. It’s also possible, Henning said, that investors who saw the price drop decided to buy, either for the first time or to increase their stakes.

SEC regulations stop the banks from buying shares on their own, Henning said.

Analysts said the initial sell-off likely was a combination of investors taking profits and people selling on fear that the price would drop even further.

Spokeswomen for GM and Morgan Stanley, one of the lead banks in the deal, would not comment on the day’s trading. A message was left for a spokeswoman from J.P. Morgan, the other lead bank.

There’s a lot riding on GM’s stock price in the coming months, especially for the U.S. government, which loaned the automaker $50 billion to save it from financial ruin last year. In exchange, the government got a 61 percent stake in GM, and it hopes to get the bailout money back from the IPO and several follow-up sales that could take years electronic check payday advance.

GM, just 16 months out of bankruptcy protection, has made an impressive turnaround from losing billions before its restructuring to making $4.2 billion in profits in the first nine months of the year.

GM made a successful return to the New York Stock Exchange on Thursday, at least by some measures. After being priced at $33 a share in the IPO, it opened at $35. It ended the day up 3.6 percent, after trading as high as $35.99 in the first few minutes of trading. Almost 457 million GM shares traded, about one tenth of all shares trading on the exchange.

The government and GM’s other owners sold 478 million common shares in the IPO, bringing in a total of $15.8 billion.

The federal treasury made $11.8 billion in the IPO by selling 358 million shares. It stands to make $13.6 billion _ and lower its stake to 33 percent _ if bankers exercise options for 54 million more shares. If the options are taken, the government will have 500 million shares left, and they must sell them for $53 each in order to recoup all the bailout money.

Ron Bloom, the Obama administration’s point person on the auto industry restructuring, said bankers have 30 days to decide on the options, and it’s “completely their decision. We’ve asked that we be informed when they’ve made it, but we have not asked to weigh in and we do not intend to weigh in.”

The Treasury Department cannot sell additional shares for another six months, and Bloom said no decisions have been made on a timetable for selling the remaining stake. He would not say if he expects the government to get all $50 billion back.

____

Ken Thomas contributed to this report from Washington, D.C.

Source

Hong Kong’s economy may have expanded at a 6.1 percent annual pace in the third quarter, extending a recovery under threat from asset bubbles.

The median forecast of 16 economists in a Bloomberg News survey compares with a 6.5 percent expansion in the second quarter from a year earlier. The number is scheduled for release at 4:30 p.m. local time today.

The U.S. Federal Reserve’s expansion of stimulus through bond purchases may fuel inflows of cash to Hong Kong, where a currency pegged to the dollar robs officials of an independent interest-rate policy. The city faces a heightened risk of an “asset bubble” in real estate, Norman Chan, the head of the Hong Kong Monetary Authority, said last week.

U.S. policies and low rates are fueling “overheating local asset markets,” said Irina Fan, an economist at Hang Seng Bank Ltd. in Hong Kong. At the same time, “wealth effects from soaring property prices” may aid consumer demand, she said.

The Hang Seng Index of stocks jumped 30 percent from a May low to yesterday’s close of 24,700.30.

Gross domestic product has expanded for three quarters on a year-on-year basis after a contraction that started in the final three months of 2008. In the first three months of this year, gross domestic product surged 8 percent.

Moody’s Upgrade

Growth is “stabilizing,” according to Frances Cheung, a Hong Kong-based senior strategist at Credit Agricole CIB.

Moody’s Investors Service raised yesterday Hong Kong’s debt rating to Aa1, the second-highest ranking, citing the government’s financial strength and “lessening vulnerability to external shocks.” Neighboring China’s growth will also aid the city, Moody’s said.

Retail sales grew 17.8 percent in the third quarter, according to Hang Seng Bank, as unemployment dropped to a 20- month low of 4.2 percent. Exports climbed 27.8 percent, the lender said.

“Going forward, the growth momentum for the externally oriented Hong Kong economy looks set to cool off, as the global economy is showing clear signs of moderating,” Fan said.

Home prices surged about 51 percent from the start of 2009, according to an index compiled by Centaline Property Agency Ltd, and new home sales volume more than doubled in October from September.

Cooling Measures

Since August, the government has raised down-payment ratios, stopped offering residency to foreigners who buy property in the city, and increased land auctions to boost supply. While Chan said that the government could take extra steps to cool the market, he wasn’t more specific.

Residential property prices will likely post a further 30 percent gain by the end of 2011, Credit Suisse Group AG said in a report this month. Developers from Sun Hung Kai Properties Ltd. to Henderson Land Development Co. Ltd. may benefit.

Full-year economic growth may exceed the government’s August estimate of as much as 6 percent and inflationary pressure is increasing, Financial Secretary John Tsang told lawmakers on Oct. 28. Consumer prices rose 2.6 percent in September from a year earlier.

Gross domestic product grew 0.6 percent in the third quarter from the previous three months, seasonally adjusted, according to the median estimate in a survey of 10 economists.

Hong Kong is likely to “sustain healthy growth into next year in its role as a service center for the Chinese economy, which enjoys ongoing momentum,” said David Cohen, a Singapore- based economist at Action Economics.

– With assistance from Michael Munoz. Editors: Paul Panckhurst, Cherian Thomas.

Source