HK market volatility to bear the brunt if US tightens monetary policy

Growth prospects still hinged on US, PRC.

According to the Asian Development Bank, growth prospects of Hong Kong hinge on continued expansion in the PRC, economic recovery in the advanced economies, and accommodative monetary policy in the US.

As an international financial center, Hong Kong, China would feel the impact of global financial shocks, particularly those emanating from the US or the PRC.

Here’s more from ADB:

If the US tightens monetary policy in 2014, capital outflows, higher interest rates, and financial market volatility will likely ensue, curtailing domestic demand and economic growth.

However, a strong fiscal position, robust and proactive oversight of the financial system, and a flexible labor market would allow the timely adjustment of the real exchange rate, if needed.

Another domestic risk is a sharp rise in property prices followed by an abrupt correction, which would undercut the value of collateral securing loans and leave some mortgaged homeowners owing more than their homes are worth. This would stifle economic activity.