Global capital flows and geopolitical risks are Hong Kong’s biggest challenges for the next few years, city’s de facto central banker says
- The HKMA sits on the world’s seventh-largest foreign-currency reserves, a financial war chest that quintupled over 25 years to US$460 billion at the end of May
- The stock market’s value grew eightfold since 1997, while bond issuance ballooned by 20 times to US$400 billion in 2021
Hong Kong will continue to see volatile ebbs and flows of capital in the foreseeable future, as rival geopolitical forces buffet its open economy, the city’s de facto central bank chief said in a rare interview.
“We have already seen some capital outflow from the Hong Kong dollar market after the [US] Federal Reserve raised interest rates,” said Eddie Yue Wai-man, chief executive of the Hong Kong Monetary Authority (HKMA). “The trend will continue, as we are just at the beginning of the interest rate rise cycle.”
Yue’s warning, delivered during a media interview last week ahead of the July 1 anniversary of Hong Kong’s handover to China’s sovereignty, underscored the unique position occupied by the world’s fourth-largest capital market, a quarter of a century since it ceased to be a British colony.
Hong Kong is a special administrative region (SAR) of China, albeit one of only two such territories – the other is Macau – that maintain separate economic and administrative systems within the same country. Monetary policy has been conducted in sync with the US Federal Reserve ever since the Hong Kong dollar was pegged to the greenback in 1983, more than a decade before the city’s return to Chinese rule.
Yet China’s role is everywhere in Hong Kong, with China-domiciled companies making up more than 80 per cent of the US$5.6 trillion stock market’s capitalisation. The market’s value has grown eightfold since 1997, while bond issuance ballooned by 20 times to US$400 billion in 2021.