Hong Kong must stay alert to the possibility of large capital outflows even as its currency has had unusual strength recently due to inflows for acquisitions, share-dividends and related transactions, an official at the Hong Kong Monetary Authority (HKMA) said. Since July 1, the Hong Kong dollar has repeatedly hit the strong end of the currency peg to the US dollar. That caused the HKMA to absorb more than US$5.6 billion in inflows and inject more than HK$40 billion into local money markets. While the inflows will likely boost prices and increase liquidity, Peter Pang Sing-tong, the authority's deputy chief executive, warned that the turmoil seen in emerging markets last year because of large-scale outflows showed that fund flows could change directions quickly. "As the US economy recovers and its monetary environment normalises, there remain considerable uncertainties in the future direction of fund flows," Pang said in an article posted on the HKMA's website over the weekend. Pang cited four reasons for the local dollar's recent strength: large dividend payments by local companies, a rise in cross-border deal activity, precautionary demand by banks owing to the half-yearly close and likely investor positioning before the launch of a cross-border stock exchange programme. Citic Pacific's acquisition of its parent's assets and the purchase of local lender Wing Hang Bank by Singapore's Oversea-Chinese Banking Corp totalled nearly HK$100 billion, while dividend distributions by locally listed companies are set to hit HK$200 billion, the HKMA said. The Hong Kong dollar is pegged at HK$7.80 to the US dollar, but can trade between HK$7.75 and HK$7.85. Under the currency peg, the city's de facto central bank is obliged to intervene when the Hong Kong dollar hits either end of the band.