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Appreciating yuan could cause a slowdown in the Hong Kong property market, analysts claim

A higher yuan may damp investment in Hong Kong’s residential real estate because it would mainly benefit yuan denominated assets, the report from Credit Suisse Group says.
‘Mainland investment demand for Hong Kong dollar denominated assets during a period of appreciation is likely to slow,’ according to analysts Cusson Leung and Joyce Kwock.
Their assessment comes as the latest report from real estate broker Savills shows that Hong Kong luxury home prices jumped 45% last year. The city’s economy grew 2.6% in the fourth quarter of 2009 from a year earlier, the first expansion in five quarters.
China, which relies on manufacturers to help create jobs for 230 million migrant workers, may allow the yuan to appreciate by June 30, a Bloomberg survey of analysts showed.
China will safeguard ‘its own economic and social development needs’ when deciding exchange rate policy, President Hu Jintao said earlier this week. Allowing the currency to strengthen would temper inflation after a 17% surge in import prices in March from a year earlier saw China post its first trade deficit since 2004.
China’s government unleashed a $1.4 trillion lending boom last year to stimulate the economy and is now trying to slow the surge in property prices.
The Hang Seng Property Index has surged 46% in the past 12 months and valuations are at 17 times estimated earnings, compared with about 14 times for the Hang Seng Finance Index and for the Hang Seng Commerce and Industry Index.
‘The residential market had a strong run in the first quarter of 2010 and we believe the price growth momentum will slow in the next few months,’ Leung and Kwock wrote.
‘Especially when the pressure of RMB (the official name of the Chinese currency) appreciation is imminent, investment demand might shift from Hong Kong property to RMB denominated assets,’ they said,
Speculation on when and how the yuan will begin appreciating escalated in the past week as US Treasury Secretary Timothy Geithner met Vice Premier Wang Qishan in Beijing after delaying a decision on whether to label China a currency manipulator.