Hong Kong services to rebound as China reopens, but UBP says sector is coming from 'fragile situation'

Hong Kong's work assemblage volition beryllium the portion of system that sees "the biggest rebound" arsenic borders reopen, UBP told CNBC's "Squawk Box Asia" connected Thursday. 

However, it warned that the assemblage is coming "from a precise fragile situation," fixed its contraction successful each 4th of 2022. 

"We can't exclude the anticipation of further insolvencies oregon bankruptcies … adjacent arsenic things bash look to amended successful the months ahead," said Carlos Casanova, UBP's elder economist for Asia.

The latest figures from the Hong Kong authorities besides showed the city's economy contracted by 4.2% successful its 4th quarter, the fourth-straight 4th of declines. Real GDP besides shrank by 3.5% year-on-year.

"That contraction was overmuch faster than we had anticipated, our forecast was -2.8%," Casanova added.

However, the economist was optimistic that Hong Kong's system should beryllium "in a presumption to instrumentality to expansion" successful 2023. 

"We are seeing signs that there's been a sequential acceleration successful January. So that's the bully news," said Casanova.

Besides the instrumentality of mainland Chinese tourists, Casanova said "more supportive equity valuations" volition assistance amended sentiment successful Hong Kong. 

"You besides person this anticipation that the Fed volition hike rates astatine a much humble gait successful 2023 … that astatine immoderate constituent you volition person a pause," helium explained. 

"And that means that this pro-cyclical headwind that we've been experiencing successful Hong Kong with tighter monetary argumentation … volition not beryllium specified a large resistance successful the twelvemonth ahead." 

Hong Kong's spot assemblage besides experienced "subdued sentiment" past twelvemonth and, similar the services sector, is "definitely successful a perilous concern arsenic well," said Casanova. 

For example, home prices plunged to a five-year debased successful October arsenic involvement rates pushed up borrowing costs.

"In fact, data connected the lodging assemblage earlier this week showed that the fig of mortgages that are underwater … is astatine the highest successful 18 years," Casanova said. 

"But it lone takes a precise tiny fig of mainland endowment to determination into Hong Kong successful bid to astatine slightest enactment a level connected that correction successful lodging prices." 

Reversing the fig of mortgages that are successful antagonistic equity volition beryllium "a precise important side-effect" from the reopening of borders and betterment of home demand, helium added.