NewHong Kong monetary chief hits back at speculators, vows to defend peg of local dollar to US greenback

Hong Kong Monetary Authority (HKMA) chief executive Norman Chan Tak-lam hit back on Monday at plans by hedge fund managers led by George Soros to short Asian currencies, saying the local financial system and stock markets are stronger and would make it ‘very expensive” for these speculators to repeat their successful attacks during the Asian financial crisis in 1997.

“There were rumour of some speculators are trying to attack the Hong Kong dollar peg,” Chan said. “The HKMA will closely monitor the market situation even amid the Lunar New Year holiday. However, we should note that the current Hong Kong financial market is substantially stronger than in 1997. We do not need to be overly worried.”

Chan said Hong Kong’s aggregated balance or the liquidity of local banking sector stood at HK$363 billion as of January 29, which is 224.4 times than the HK$1.5 billion in July 1997. Foreign reserves is at HK$422 billion, which is 5.2 times higher than the HK$67.6 billion in 1997.

The Hong Kong stock market cap is at HK$21.818 trillion, which is 3.7 times bigger than in 1997 while the current PE ratio is only 8 times, cheaper than the 19.2 times in 1997.

“If the speculators now want to repeat the same strategies in 1997 to short sell the Hong Kong dollar to try to push the interest rate up and to benefit from a falling stock markets, they would need to use hundred of billions of dollar which would be very expensive for them to do so,” Chan said.

Kyle Bass’s Hayman Capital Management told the Wall Street Journal on Monday he believes the yuan would fall as much as 40 per cent over the next four years and, like Soros, he is shorting Asian currencies.

Soros drew the ire of Chinese officials after the billionaire hedge fund manager said he China would have an economic hard landing and the yuan and Hong Kong dollar may fall sharply as a result.