Here it goes again. At the start of every new year, the local media will almost religiously follow the ritual of force-feeding their readers with the prognosis of the usual crowd of investment gurus, most of them usually restating the obvious.

But, there's something different this year. The obvious factors that normally exert a big impact on asset values are being obscured by the unfolding drama on the currency front that could upend all the traditional market analytical tools.

We are, of course, talking about the massive inflow of capital from regional economies, including the Chinese mainland, that appears to have distorted asset prices.

Take the property market for example. The surge in homes prices since May is widely attributed to the abnormally low cost of funds, prompting many buyers to scramble into locking in the favorable mortgage-loan terms offered by numerous local banks. But, last month's increase in interest rates, as well as projections of faster and bigger rate hikes this year, have failed to dent the runaway property market.

Predictions of an impending price correction in early 2017 by some major property agents have been largely ignored. Homes buyers are motivated by the belief that prices will go on climbing.

Such bullishness has been fueled by reports of huge purchases of luxury residential units by overseas buyers who're willing to pay above average market prices to get what they want. In recent months, mainland property companies had reportedly outbid key local developers at several high-profile government land auctions.

Their exploits, widely publicized by the local media, are seen as a show of confidence in the long-term future of the local property sector. Their commitment demonstrates that what they've brought to Hong Kong is not just hot money, but investment capital.

In a way, the inflow of capital can be seen as a vote of confidence by regional investors in the Hong Kong government's commitment to, and capability in maintaining the currency peg. As such, higher interest rates may be good for the property market.

(HK Edition 01/06/2017 page9)