Lasting effects of the subprime crisis will continue to fill the US economy with negative sentiment over the next six to 12 months, HSBC Executive Director Peter Wong predicts.

Wong said the government's rescue plan is a positive, but it also indicates that the problem is far from over. And investors should keep an eye on the coming second-quarter results of US financial institutions and US companies.

The US government on Sunday unveiled measures to ease funding concerns at beleaguered mortgage finance agencies Freddie Mac and Fannie Mae, and to head off a possible collapse in global financial markets.

But Wong wouldn't disclose whether HSBC has been exposed to any agency debts of the two US mortgage giants.

"The economic problem in the US this time has broader and more significant implications on the global economy than those of the Asian financial crisis in 1997. Hence, the economic condition in the next few months is still worrying," Wong said, noting that the US has entered into stagflation.

Wong estimates that the property market will worsen, which may ultimately force banks to enlarge provisions and recapitalize. Meanwhile, the mortgage problem will surely have a negative impact on other credit products.

"Negative sentiment in the US impacts Hong Kong stocks and the property markets," Wong said. "But Hong Kong's GDP will still have a healthy growth of more than 5 percent, due to the strong consumer demand."

Fed policy makers are facing a dilemma, as increasing inflation risks prompt the need for an interest-rate hike, which may put the slowing economy at risk of a hard landing.

Wong said that US Fed rate is likely to be unchanged in the short term, given the uncertainties in the country's economy. Hong Kong's interest-rate movement will continue to follow the trend.

On the mainland, Wong said its economy will maintain a healthy growth of 7 to 8 percent in the long term. But the government will continue using tightening measures to combat the growing inflation.

"As the growth slows down, so will the pace of currency appreciation," Wong added, estimating that the renminbi will appreciate 10 percent this year.

Renminbi savings in Hong Kong have already tripled this year over the last. Wong noted that renminbi products, including bonds, are in strong demand in Hong Kong.

HSBC is rolling out new services, including the introduction of small-sized personal loans for low-income groups, as well as priority service for senior citizens, and not requiring children's savings accounts to have a minimum balance, Wong said yesterday.

Among HSBC's 4.1 million customers, 500,000 are over the age of 65.

(HK Edition 07/18/2008 page2)