Officials insist Hong Kong banks ready to defend against any Brexit turmoil

HKMA’s Norman Chan says financial sector has passed through many times of crisis and has ‘prepared well to cope with any fluctuations in coming days’

PUBLISHED : Thursday, 23 June, 2016, 9:23pm
UPDATED : Thursday, 23 June, 2016, 9:23pm

Hong Kong’s central bank and the securities watchdog say they have taking action to defend the local investment market from any potential global turmoil triggered by the British EU referendum.

Banks and brokers in Hong Kong reported this week they have already collected two to three times more money from clients as margin deposits for forex and futures trading, particularly in sterling, gold and futures contracts.

Regionally, Singapore Exchange on Thursday also collected more deposits for stock margin trading, to prepare for any volatily linked to the British vote, the result of which expected early Friday afternoon Hong Kong time.

“There will be an impact on the Hong Kong banking sector, whether Britain stays in or leaves the EU,” said Norman Chan Tak-lam, chief executive of Hong Kong Monetary Authority, speaking on the sidelines of a public event on Thursday.

“We have already alerted the banks to prepare themselves to fend off any volatility in the forex market.

“However, I do not think we need to worry too much. The Hong Kong banking sector has passed through many a crisis in past years, and they have prepared well to cope with any fluctuations in the market in coming days.”

Chan said a Brexit would trigger financial market turmoil globally for a short period of time, and that a remain vote would mean less volatility.

The Securities and Futures Commission spokesman also told the Post on Thursday that it regularly monitors external events which may have implications for the Hong Kong market.

Benny Mau, chairman of Hong Kong Securities Association, said many local brokers have already increased margin deposits from customers two to three times the normal level to cover their positions in forex and other futures trading.

“No matter the referendum result, sterling, the euro and other currency markets are expected to continue to be volatile for a while,” Mau said.

“Raising margins is a wise move for all brokers to defend the risks faced by brokers.”

Even if the country remains in the EU, there would be profit taking. The volatilities of the forex and stock markets worldwide would last until early next week
Jasper Lo, chief executive of King International

Jasper Lo, chief executive of King International, said sterling and the stock markets in Hong Kong had risen in the past few days, as expectations grew of Britain remaining in the EU.

“If the result is Brexit, the market would definitely fall sharply.

“Even if the country remains in the EU, there would be profit taking. The volatilities of the forex and stock markets worldwide would last until early next week,” Lo said.

The pound was trading at about US$1.47 on Thursday evening, which Lo expected to fall to US$1.38 in the near term.

David Lafferty, chief market strategist at Natixis Global Asset Management, said a “leave vote” was likely to cause a quick sell-off in risk assets, and also lead to longer-term uncertainties.

“UK and EU negotiations, post-Brexit, could formally take two years, or much longer.

“the market implication is a wet blanket of uncertainty thrown over the UK and EU for a prolonged period,” Lafferty said.

HKMA’s Norman Chan, meanwhile, also said that officials were keeping a close eye on the recent jump in mortgage lending by Hong Kong developers, and urged greater vigilance by the banks who finance property companies.

Sun Hung Kai Properties, for instance, is offering mortgages worth as much as 120 per cent of a home’s value at one of its projects as prices started to decline.

Chan said such types of lending would add risks to both the home buyers and the developers, and that he had asked the banks to carefully access the risks.