I tend to look at the recent strength in global stock markets as a liquidity driven rally. I am still rather cautious of global economic prospects in the coming year, bearing in mind the over-capacity in many sectors and hence the deflationary pressures as you mentioned. I suspect that the recent stronger-than-expected consumer demand in the US (by advancing forward car purchases, for example) is merely setting up the scene for more disappointment sometime next year. However, given the strong dose of monetary stimulus (in the US in particular), and since inventory correction has happened for so long, there could be a burst of activity for a certain period of time for some industries (the electronics/IT sector, for example).

Against this background, I think one should not have too much hope for an early and strong turnaround in the Hong Kong economy. It is likely that growth in 2002 would be sluggish -- with a weak H1 followed by, hopefully, a rebound in H2.

Looking at the Hong Kong property market from this economic scenario, I am still a bit cautious about the current strength in the market.

Some suppressed demand is always there as there is no shortage of purchasing power and prices (together with a low mortgage rate) have become a lot more affordable to many people. For some time now, it's all a matter of confidence in the future of the market that is holding back buyers. While there are a lot of people who could not upgrade because of negative equity, there are also a lot of people whose property is not mortgaged or who have paid down most of their mortgage loans.

With a low level of interest rates, and the prospects of this low interest rate environment to continue for some time (against a weak economic scenario), it makes sense for people to buy instead of rent, and it also makes a strong case for investment.

Furthermore, despite all the negative talks about Hong Kong's lack of competitiveness (particularly versus Shanghai), I think China's WTO accession will generate more business opportunities for Hong Kong. And more and more companies are going to take action -- a lot of the impact of WTO on Hong Kong was only talk in the past.

Another important dimension is the gradual relaxation of the restrictions on Mainland Chinese visitors and businessmen to come to Hong Kong. The potential demand for property from the Mainlanders (either for own use, investment or speculation) could be substantial. Most mainlanders do not have the inferiority complex a lot of people in Hong Kong are having right now. They see Hong Kong as a dynamic, international and free city with a lot of opportunities.

Having said all that, I am still not sure whether the current demand would be strong enough to digest the rather large supply (both the unsold stock and the upcoming supply, and of course those defaulted mortgages from banks too). There is also the potential sales from the public sector which has been frozen right now. Most developers, I guess, is trying to make as much as hay as possible when there is sunshine.

All in all, I think it is too early to expect meaningful price increases for the property market in Hong Kong. But of course, forecasting is always a dangerous activity.