Swiss bank UBS has cautioned investors that Asia is beginning to cool. The red-hot Hong Kong real estate market is in particular focus.

By Shruti Advani, Guest Contributor finews.asia

Despite continued global fascination with all things Asia, UBS has turned wary of the region. The Swiss bank warns investors of continued volatility in the aftermath of a broad-based sell-off in Asian equities at the start of the fourth quarter.

The reversal is significant because UBS, like many private banks, has placed a big bet on Asia. The Swiss bank and others have benefited from booming markets and a willingness by Asian clients to borrow money and to trade.

Fears of a Weakening Economy

Most pertinent to Asia investors with large chunks of their wealth tied up in real estate: the bank expects home prices in Hong Kong to soften by as much as 10 to 15 percent over the next six months to one year. Intensified Sino-U.S. trade tensions and fears of a weakening economy have already weakened home prices by 2 percent from a peak in August.

UBS expects home prices in Singapore, while not buoyant, to remain range-bound, not because of any macro-economic worries but because of the government’s property cooling measures. The rising SIBOR (Singapore Interbank Borrowing Rate) and HIBOR (Hong Kong Interbank Borrowing Rate) pose further problems for property prices in the region.

Specter of Trade War

UBS' private bank investment chief Mark Haefele believes consensus 2019 earnings growth forecast of 11.5 percent is aggressive, and has revised down to 7.6 percent. His fear that Asia-Pacific currencies could fall by as much as 2 percent on average against the U.S. dollar over the next three to six months could be one reason for the skepticism.

However, an escalating trade war with the U.S. is the main reason for concern. Haefele expects China’s growth to slow visibly to 6 percent in 2019, from 6.5 percent this year and cautions investors to hedge their CNY exposure, with a target of 7.3 against the dollar by the end of 2019.

Mild Brake

Haefele, along with APAC investment chief Min Lin Tan, remains overweight on China, South Korea, Singapore and Thailand versus Taiwan, Hong Kong, Philippines and Malaysia.

A 35 percent oil price inflation from the 2017 average, against the backdrop of tighter monetary policies, should put a «mild brake» on Asian economic growth, provided there are no further supply shocks.