The latest news from Washington on interest rates has given the moribund Hong Kong stock market a shot in the arm.

The decision by the US Federal Reserve's (Fed) policymaking committee to keep the benchmark rate unchanged had been widely expected. But, what rallied global stock markets on Thursday were the cautious comments by Janet Yellen, the US Fed's chairwoman, on the economy, indicating an extension of the Fed's stimulus campaign.

There had been earlier expectations of US interest rates rising by one percentage point through four quarter-point increments in 2016. However, it's now widely forecast that the increase will be trimmed to half a percentage point for the whole year.

Hong Kong is bound to track the US benchmark rate by the linked exchange-rate mechanism. The expected more moderate uptrend in interest-rate adjustments in coming months has, therefore, greatly relieved the pressure on domestic asset prices, particularly those of properties.

The bullish sentiment, nevertheless, needs to be tempered by Yellen's cautious projection of the global economic outlook while remaining upbeat over that of the US. She said while the US has outpaced other developed economies in recent years, weak global growth poses a continued threat.

In his 2016-17 Budget speech, Financial Secretary John Tsang Chun-wah predicted a slowdown in economic growth to below 2 percent for this year, compared with 2.4 percent for 2015. Most worrisome is that the exports sector, which used to be Hong Kong's main growth engine, has taken the hardest hit with no sign of a recovery anytime soon.

Adding to the woes, the persistent decline in tourist arrivals, especially from the Chinese mainland, has sent the local retail sector, a major employer, into a tailspin. This has ruffled many economists who now expect the unemployment rate to rise later this year.

On the bright side, it's hoped that the more moderate-than-expected interest rate uptrend will help stabilize homes prices which have fallen by an average of 10 to 15 percent from their peak in the middle of last year. Hong Kong needs a resilient property sector because so much personal wealth is tied to it. A strong real estate market can help stimulate domestic expenditure in investment and consumer spending, which can help make up for the slack in the exports sector.

The local stock market rebounded smartly on Thursday. But, stock analysts warned that it should not be taken as the start of a bull run. The fundamentals just aren't there yet.

(HK Edition 03/18/2016 page10)