Some of the latest data from the Hong Kong Monetary Authority (HKMA) is suggesting that Hong Kong residents are tightening their belts.
Financing is an issue in Hong Kong right now, from foreclosures to credit cards now. The latest quarterly statistics released this week showed a decline in the amount of credit cards in circulation. The HKMA estimates that there are 18.55 million credit cards in use now. This is a 1.8% drop year over year and a 2.6% drop quarter over quarter.
The central bank also cited the absolute quantity of transactions. In the latest period, the number of credit card transactions was 131.3 million in Q1 2016. This comes out to just over 7 transaction per card in the quarter. Analysts noted that there could be seasonal effect due to the holidays here.
Another interesting note pointed out by the HKMA was that debit card transaction value went up 5.1% vs last quarter. This could be a forward looking indicator that the Hong Kong population is not interested in racking up more debt, given the current at state of the economy…due to debit cards requiring the cash for the transaction on the account while credit is naturally a loan. Equity financing loans works in a similar way.
To leverage the benefits of a stock loan, investors must own the shares of the underlying company, the same way consumers are paying for goods with debit cards, the asset must be in the account. However, unlike debit card transactions, stock loans do have an interest component to them, to compensate for the implicit carry risk. To that point, there are benefits for the stock lending party.
Squadron Lending’s stock loan program creates a unique opportunity for the client to keep any upside appreciation in the value of the stock, while mitigating the downside exposure to the Borrower. Another benefit derives from the global interest rate market, luckily for clients, loans can be taken out for an all time low cost now. Given that the Federal Reserve of the United States just kept interest rates unchanged, Hong Kong interest rates will stay low for the time being too. With that said, prospective buyers should also consider that this generational opportunity will not last forever.