IMF cuts global growth outlook to the slowest pace since crisis

The International Monetary Fund (IMF) cut its outlook for global growth to the lowest since the financial crisis, amid a bleaker outlook in most major economies and signs that higher tariffs are weighing on trade. The world economy will grow 3.3% this year, down from the 3.5% that the IMF had forecast in January. The 2019 growth rate would be the weakest since 2009. It’s the third time the IMF downgraded its outlook in six months. The fund also trimmed its predicted global volume of trade in goods and services, from an increase of 4% to 3.4% this year, following the 3.8% gain in 2018. (Source: Bloomberg, 9 April 2019)

Research View

Despite Hong Kong’s residential prices having rebounded since January 2019 on the back of the stabilisation of interest rate increases, the city’s economy remains uncertain. Hong Kong’s total exports and retail sales declined in the first two months of this year, and the Hong Kong PMI, which indicates private sector’s business environment, deteriorated. As such, the Hong Kong government’s forecast for the city’s real GDP growth should decelerate to 2-3% in 2019, which will eventually be impacted by the slowdown in the world and China’s economy. We expect the growth of property prices and rents for most sectors to slow in 2019, from the stronger growth in 2018.


LVMH’s global revenue rises 16% in first quarter

LVMH reported that global revenue rose 16% YOY in the first quarter of this year, with an organic growth1 of 11% YOY. It mentioned that the Gallerias of Hong Kong and Macao performed particularly well in its selective retailing segment. Fashion and leather goods saw the strongest organic revenue growth of 15% YOY, while revenue for alcohol as well as perfumes and cosmetics both rose 9% YOY in the quarter. Its global revenue from watches and jewellery grew the slowest, at just 4% YOY, with watches lagging. (Source: LVMH, 10 April 2019)

Research View

LVMH’s positive results in the Gallerias Hong Kong suggests that the luxury brand should continue to show interest in expanding in Hong Kong, despite the recent weakness in retail sales figures. For instance, Sephora, a beauty retailer owned by LVMH, plans to enter Hong Kong again after a nine-year absence, while LVMH’s luxury watch brand TAG Heuer is also planning to expand in Hong Kong2. We believe trade in affordable luxury goods and beauty products should remain solid on the back of the growing number of tourists and strong local consumption, which will continue to support retail leasing demand on first-tier high-streets in core areas.

1 a growth with comparable structure and exchange rates
2 LVMH 2018 Annual Report P.80


Societe Generale cutting 1,600 jobs in blow to investment bank

Societe Generale (SocGen) said it plans to cut about 1,600 jobs after a slump in trading revenue, as a result of Chief Executive Officer Frederic Oudea’s efforts to boost profits in the investment-banking unit. The reductions include close to 1,200 positions at the global banking and investor solutions division, which houses its trading activities. The bank said, without giving further details, about 750 jobs will disappear in France. The move by SocGen comes as some rivals indicated that challenging trading conditions should persist in 2019. (Source: Bloomberg, 9 April 2019)

Research View

While the direct impact of job cuts in SocGen is yet to be reflected immediately in the Hong Kong office market, we believe the potential job cuts may not lead to a significant business shrinkage in Asia, where it has strong business potential compared to other regions. Meanwhile, other banking giants like JPMorgan Chase and Wells Fargo have reported better-than-expected Q1 results with earnings ahead of analysts expectations3. However, we expect corporates to stay cautious amid the unsettled US-China trade war and extended Brexit deadline, which will slow their expansion plans and hence demand for offices, especially around Hong Kong’s CBD area.

3 Wall Street Journal, 12 April 2019