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Popular asset classes face a wide array of prospects next year as US authorities get ready to taper.迷你倉 The Federal Reserve, following strong US employment data recently, is expected to start winding down its monthly bond purchases in March or earlier. When that happens, Hongkongers must brace for local interest rates to rise and property prices to falter. But it's not all gloom and doom, for falling prices are always seen as a golden opportunity among some quarters to take the plunge. So, 2014 is likely to be mixed. But the ride, analysts warn, is bound to be bumpy. PROPERTY Investment banks and property developers have turned bearish on the home market. They see prices plunging between a sedate 5 percent and a staggering 50 percent next year, and that's not only due to interest rates rising. Home prices are expected to head south primarily because they have risen more than 1.34 times from their 2008 trough. Hefty discounts offered on new flats have already compelled many homeowners in the secondary market to cut prices. Deutsche Bank expects prices to slide between 15 to 20 percent. The worst-case scenario for the Frankfurt-based institution sees prices tumbling by as much as 50 percent from their 2013 peak. Since October, Sun Hung Kai Properties (0016), the SAR's largest developer, has offered huge rebates on its high-end project, The Cullinan. Others are offering as much as 26 percent rebates and discounts to help homebuyers pay government stamp duties. Barclays analyst Paul Louie expects prices to fall by a third by 2015. And Centaline Property Agency founder Shih Wing-ching warns: "Secondary homeowners are likely to be forced to cut prices further." He expects prices to drop by 20 percent in the next 12 months. But not everyone concurs. The optimists feel the room for correction is limited as sparse supply will keep home demand buoyant. Morgan Stanley, for example, believes prices of new flats will remain high, even after the discounts. The investment bank also does not expect the Hong Kong interbank offered rate - which moves in tandem with the US federal funds rate - to rise anytime soon. In fact, the next Fed rate hike, according to the US investment bank, is at least two years away. Some analysts also point out that despite the discounts, buying a home is still beyond the reach of many middle-class families. For the average mortgage-to- income ratio - the proportion of monthly income being spent on a mortgage - has risen sharply, signaling less and less people can now afford to buy their own flats due to robust prices. And prices are set go higher next year, according to Wing Tai Properties (0369) executive director of sales and marketing Wilson Chan Yuk-sing. The mainland's strong economy and faster yuan appreciation versus the greenback is likely to convince more mainlanders to invest in Hong Kong property, he said. STOCK MARKET The outlook for local stocks is much more solid than property after the mainland leadership outlined far-reaching economic reforms last month. Standard Chartered (2888) - which has one of the most bullish views on local equities - expects the Hang Seng Index to reach up to 28,000 points, a 17 percent upside, by next December. Erwin Sanft, head of China and Hong Kong equity strategy at StanChart, says local stocks will continue to benefit from the reform blue-print issued at the third plenary session of the Communist Party's Central Committee last month. "Sentiment has improved among investors," said Sanft, who likes Hong Kong-listed mainland energy, industry, raw material and automobile firms. Retailers, developers and insurers from across the border are also his favorites. But he prefers to avoid telecom and infrastructure plays as they have high valuations. Sanft is also underweight on mainland banks as reforms are imminent for the liberalization of interest rates, ushering more competition into the sector. Goldman Sachs, meanwhile, sees the HSI reaching 26,500 by the end of next year. Its strategist, Kinger Lau, said the market has become bullish due to Beijing's issue of the reform blueprint. The market can draw succor from expectations that the earnings of listed companies are expected to rise 10 percent on average next year, Lau said. Subsequently, valuations of local stocks will be affected, he said. Mainland reforms are mainly intended to boost domestic demand, which, according to Goldman, is likely to bode well for the following stocks: Want Want China (0151), China Resources Gas (1193), Shanghai Fosun Pharmaceutical (2196), Tencent (0700) and China Galaxy Securities (6881). SHK Private, a local wealth management firm, expects the HSI to hover between 25,000 to 27,500 next year. Stephen Sheung Siu Ho, head of investment strategy at SHK Private, said the Hong Kong and mainland stock markets could outpace those of Europe and the United States. He is bullish on the mainland financial sector, including banks and brokerages as they still carry modest valuations. The Hang Seng Index ended down 0.5 percent at 23,218.10 yesterday, while the China Enterprises Index shed 1 percent. GOLD The price of the precious metal is expected to ebb as the US economy continues to rebound. Gold is forecast to fall to as low as US$1,000 per ounce next year, analysts have wa自存倉ned. "Gold will turn weak next year while the risk appetite of investors grows," said Sam Lee Chun-wai, assistant vice president at Emperor Financial Services. "As the US economy improves, people will see a lesser need to [retain] safe-haven assets." Lee expects more capital to flow into global equity markets. Also, the strengthening of the dollar will reduce demand for the metal, dragging prices lower. "We may see some rebound [in prices]. But that will not alter the downside trend for next year," Lee said, adding that prices may slump to US$1,000 per ounce. Goldman Sachs lowered its price forecasts to around US$1,320 per ounce for the end of this year. By this time next year, it expects the metal to slide to US$1,050 per ounce. Analyst Jeffrey Currie from the US investment banks says gold is a "slam- dunk" sell for next year as the US economy extends its recovery. Goldman attributes the bearish view on gold to recent positive data about the US economy. The precious metal hovered between US$1,231 and US$1,354 last month - sharply down from US$1,700 per ounce it touched in January. From January to November, gold fell 25.4 percent against the dollar - the first time since 2004. Even global conflicts may not be able to boost prices in the long term, Lee warned. A gold rush by mainlanders due to a sudden plunge in bullion prices this past April and May is unlikely to repeated next year. But even if there is another buying spree, the impact on the spot prices would be limited. "It's worth buying gold if its price tumbles to US$1,000 per ounce," Lee said. Victor Thianpiriya, a commodities analyst at ANZ, has a different opinion. He is bullish in expecting prices to hit US$1,450 per ounce by the end of next year, driven by robust physical demand from the world's largest jewelry market - China. "China has surprised the market on how strong its demand is. There's also potential for Indian demand to come back," Thianpiriya said. In the third quarter, Chinese consumers absorbed 210 tonnes, up 18 percent from a year earlier, according to the World Gold Council. In India, consumption fell 32 percent during the period due to government's crackdown on imports. FOREX The US dollar is expected to strengthen next year while the euro and yen head in the opposite direction. Closer to home, the appreciation in the yuan versus the greenback is tipped to slow after lasting for more than eight years. As for the Fed, analysts remain divided on when they think it will start to wind down its monthly bond purchases - a process known as tapering. But they agree that when tapering does start, the dollar will strengthen. Mark McFarland, global chief economist at Coutts, sees tapering starting by March - at the earliest. This, he says, will support a strong dollar. But economic data coming out of the United States could make the currency volatile. One factor adding to the volatility could be a continued slide in the unemployment rate, not because more jobs are being created but because more and more baby boomers are entering their twilight years, McFarland noted. Bruce Yam Hiu-ping , foreign exchange strategist at Sun Hung Kai Forex, concurred. But he adds that the Fed has no choice but to start tapering next year, for the prevailing liquidity could induce a bubble. Also working in favor of the greenback is the discovery of the large amount of shale gas in the United States that is likely to boost the world's largest economy. In addition, rising earnings at several global tech behemoths, based mostly in Silicon Valley near San Francisco, is poised to help the greenback maintain a firm tone next year, Yam said. A strong dollar, on the other hand, means a relatively weaker euro and yen. Yam says the high unemployment rate together with aging population in the euro zone will lead to lower domestic consumption and hence slower economic growth. Yam believes the recent strength in the euro is unlikely to be sustainable. There would even be a high possibility of the euro plunging to US$1.20 against the dollar next year, if it dips below 1.275, a key level of support, said Yam. McFarland expects the euro to dip below 1.30 again. Loan growth in the euro zone is still negative and there is a risk of deflation, so the European Central Bank may have room to further cut rates, he said. As for yen, Johanna Chua, Citibank's chief economist for Asia Pacific, sees it weakening to 105 against the dollar, as the Bank of Japan continues to purchase assets to boost liquidity. Yam thinks Abenomics - stimulus- ridden policies of Japanese Prime Minister Shinzo Abe - may not work, compeling the central bank to step in and further weaken the yen. On the yuan, Ha Ji-ming from Goldman Sachs, expects the currency to appreciate 1 to 2 percent versus the greenback next year. But going forward, the gains are likely to ease as an aging population consumes less, inducing slower growth . The yuan could even weaken versus the dollar next year as rising debts in China overshadows its economic reforms, Yam from SHK Forex said. Also, ongoing currency liberalization in China may allow some funds to leave the country, sparking a decline in the yuan, McFarland said. The mainland currency is expected to face stiff resistance at US$6. staff.reporter@singtaonewscorp.com 迷你倉