GF Securities released a research report stating that the current recovery in Hong Kong's property market is driven by improved liquidity conditions and stronger economic expectations. The resulting wealth effect and rising risk appetite are expected to further boost sentiment in capital markets, creating a synchronized rebound in both stocks and property. Therefore, a stabilized property market will not divert capital from Hong Kong stocks but may instead foster a positive cycle between the two asset classes through wealth effects.

The liquidity of Hong Kong stocks is primarily influenced by global macro conditions (Fed policy, geopolitical factors, southbound capital flows) and China's economic fundamentals, with the property market playing a secondary role. GF Securities' key observations include:

1. **Divergence in Rental Yield vs. Funding Costs**: - In mainland China’s tier-one cities, rental yields (below 2%) are lower than mortgage rates (3.1%). - In Hong Kong, rental yields (3.6%) exceed mortgage rates (3.22%). Recent stabilization and recovery in property prices have raised concerns that a sustained rebound in the property market might drain liquidity from Hong Kong stocks.

2. **Historical Patterns in Overseas Markets**: - Past recoveries in global property markets after downturns (e.g., Japan’s "Lost Decades" post-1990s, South Korea’s 1997 Asian Financial Crisis, the U.S. stagflation in the late 1970s-early 1980s, the 2008 subprime crisis, and Spain’s 2008 and 2012 crises) show no substitution effect between property and equities. Instead, a recovering property market typically signals reduced macro risks, ample liquidity, and improved growth expectations—factors that support higher financial asset valuations, corporate earnings, and household wealth effects, thereby strengthening equity markets.

3. **Hong Kong’s Market Dynamics**: - Hong Kong’s stock and property markets have historically moved in tandem, driven by shared fundamentals and liquidity conditions (e.g., post-1997 Asian Financial Crisis, 2003 SARS outbreak, and 2008 subprime crisis). - The current rebound in Hong Kong’s property market reflects improved funding conditions and economic optimism, which may enhance capital market sentiment and create a reinforcing cycle between stocks and property.

4. **Policy and Rate Tailwinds**: - Hong Kong’s property market has benefited from policy easing, including the February 2024 removal of buyer stamp duties for non-locals and the February 2025 adjustment raising the tax-exempt threshold for properties under HK$4 million (from HK$3 million). - The Fed’s rate-cut cycle has lowered Hong Kong’s benchmark HIBOR, reducing mortgage rates and easing homebuying costs. - Rising rental yields (averaging over 3.5% annually) have also increased the appeal of property investments.

5. **Investment Strategy**: - The current rally in Hong Kong stocks is supported by strong fundamentals. A barbell strategy is recommended—holding dividend-paying stocks as core positions while maintaining exposure to growth sectors with solid industrial logic (e.g., Hang Seng Tech, covering internet and renewable energy). - With Hong Kong’s property market stabilizing and Fed rate cuts expected, developers like SHK PPT and SINO LAND may see valuation upside.

**Risks**: Geopolitical tensions, overseas inflation risks, and potential shortfalls in pro-growth policies.