Hong Kong Monetary Authority

Yam shrugs off regional upheaval fear

PUBLISHED : Friday, 23 June, 2006, 12:00am
UPDATED : Friday, 23 June, 2006, 12:00am

Global economy sound despite volatility, says HKMA chief

Despite recent slumps in the emerging markets, further financial turmoil in the region was unlikely as the global economy remains robust, Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said.

Speaking on the sidelines of a business seminar, Mr Yam said the volatility in the equity markets in the past month was only a correction caused by inflated asset prices which in turn were due to the heavy inflow of funds into the markets early this year.

'I don't think it will be a problem after the correction because the fundamentals of the global economy remain sound,' he said, adding that the emerging markets may still be volatile.

Most of the emerging stock markets in Asia-Pacific fell over the past month with the benchmark in South Korea dropping 7.5 per cent, Taiwan 6.5 per cent and Philippines 11 per cent.

The Hang Seng Index edged up 0.13 per cent.

Mr Yam said he would not rule out the possibility that some funds had left the city recently, dragging down the Hong Kong dollar exchange rate.

The outflow of money could be due to arbitrage activities as the interest rate level in Hong Kong was lower than that in the United States.

The Hong Kong dollar fell to a nine-month low of $7.768 against the US dollar early this week but regained some of the loss yesterday to close at $7.766.

'However, I am not worrying there will be a panic outflow of capital,' he said.

Mr Yam said that Asian central bankers needed to explore and develop new forms of regional co-operation in Asia, particularly in the financial markets and build a bigger market to cope with the changing dynamics of international finance.

'A sudden exit of capital could leave those economies with weaker financial systems even weaker, with spillover effects on other parts of the region,' he said.

Meanwhile, Kenneth Lay, the World Bank's acting vice-president and treasurer, said East Asian countries, including China, Indonesia and Thailand needed to further diversify by developing securities markets.

Citing a report by the World Bank, Mr Lay said that the accumulated foreign currency reserves in the region amounted to more than US$1.6 trillion and the asset size of the East Asian financial markets stood at US$9.6 trillion last year, about 21 per cent of the US financial market.

However, the stock markets and bond markets in most regional economies were still very small, he said.