Short sellers believe a weakening economy will force Hong Kong Monetary Authority to tweak the currency peg
- Currency bear Thomas Roderick says that the government may eventually consider removing the peg or at least make some change to the system
- Ignatius Chan Tze-ching, a senior adviser to Bank of East Asia, says that the government will not change the peg, and has the ability to defend it
The months-long protests have hit Hong Kong’s economy hard, pushing it to the brink of a recession, leading some fund managers to bet that the Hong Kong dollar’s peg to the US dollar is on borrowed time, but the Hong Kong Monetary Authority and bankers say such a move is unlikely.
Thomas Roderick, portfolio manager at UK boutique fund house Trium Capital, which manages US$700 million, is among those who have been shorting the Hong Kong dollar in recent months.
He believes the protests and possible recession might lead the government to change or remove the peg, which has been fixed at HK$7.8 per US dollar since October 1983. The Hong Kong Monetary Authority, the city’s de facto central bank, intervenes as needed to make sure the currency trades within the band of 7.75 to 7.85. The currency stood at 7.84 against the US dollar on Friday.
Roderick said that the peg is designed in such a way so that the Hong Kong dollar’s exchange rate can be defended and that it remains stable even when overseas markets are in the midst of serious crisis like the Asian financial crisis in 1997 and the global financial crisis in 2009.
“However, it is not designed to handle a domestic crisis, which has never happened before,” Roderick said during a recent visit to Hong Kong.