While Hong Kong has seen substantial capital inflows in recent months, its de facto central bank has warned of a possible turnaround, with funds flowing out of the city, reflecting demand from more fragile economies.
Strong demand for Hong Kong dollars has pushed the currency up against the strong side of its trading band, prompting the Hong Kong Monetary Authority (HKMA) to intervene in the currency market almost every day since the collapse of Lehman Brothers Holdings in September.
But HKMA chief executive Joseph Yam Chi-kwong struck a cautious note yesterday in his weekly column, saying the recent substantial inflow might reverse course.
'We are acutely aware of this possibility, given its implications for domestic monetary conditions,' he said. 'But we do not see any plausible reason why it might happen in the near future.'
His remarks came after Bank of China issued a report last month warning the capital inflow was only temporary and any sudden reversal of fund flow from Hong Kong would seriously harm the local economy.
Economists also said the chances of capital outflow were rising, with the global economy facing further volatility.
'No one knows whether the past two months may just have been the calm before the storm,' said Law Ka-chung, the chief economist and strategist at Bank of Communications' Hong Kong branch.
