The sluggish domestic debt market may be a victim of the Hong Kong Monetary Authority's success in managing the pegged exchange rate, according to deputy chief executive Tony Latter.
Mr Latter said the peg encouraged borrowers to issue debt in US dollars instead.
The peg had worked so well over the years, that in normal market conditions 'there is perhaps less incentive to exploit the potential of the local currency debt market than there might be in other centres'.
Delivering the keynote address at the Asian Financial Markets Conference yesterday, Mr Latter said: 'Because of our pegged exchange rate, some borrowers may consider the US dollar market a satisfactory surrogate, especially given its established liquidity.' On top of this structural deficiency, Mr Latter said market conditions in favour of Hong Kong dollar debt issues were seldom regarded as favourable in all respects.
For example, the present general level of interest rates might tend to discourage longer-term issues.
'There is definitely a chicken-and-egg problem in that prospective investors would like prior evidence of a liquid market, but liquidity cannot be tested until there have been issues,' he said.
