Warning sounded on taper outflows
HKMA reflects fears with caution to banks and investors over prospect of asset price volatility as funds exit on heels of Fed stimulus reduction
Hong Kong authorities have warned banks and investors of liquidity outflows and asset price volatility after the United States Federal Reserve announced tapering its bond-buying programme early next year while maintaining low interest rates as the American economy continues to improve.
"The normalisation of the US monetary conditions will inevitably heighten market volatility," warned the Hong Kong Monetary Authority in response to the Fed's policy. "The Fed's quantitative easing policy over the past few years has led to large capital inflows to emerging markets. As the US economy gradually recovers, fund flows may reverse, exerting downward pressure on asset prices."
The regulator is worried that as tapering begins, the huge stash of funds parked in Hong Kong since 2008 will begin to drain and possibly cause sudden drops in asset prices and lead to liquidity problems in the banking sector.
Since 2008, there has been a net inflow of HK$766 billion into the city's financial system after the US launched the quantitative easing policy in the wake of the financial crisis, according to data collated by JPMorgan.
Financial Secretary John Tsang Chun-wah said yesterday that there had been no noticeable outflow since tapering was announced but reiterated his advice to Hong Kong residents to exercise prudence when taking out loans as interest rates would rise.
The long-expected decision to begin tapering will see the Fed reduce its US$85 billion monthly asset purchase by US$10 billion, divided evenly between mortgage bonds and US Treasuries. The policy will be expanded on a month-by-month basis.