Look beyond the short-term market selling to see a stable future for Hong Kong’s economy
Our dollar may be weakening, but the fundamentals are strong and the mainland’s growth policies will bring benefits
The weakening Hong Kong dollar to a four-year low within the band allowed by the peg with the US dollar has sent finance officials rushing to reassure the public.
Financial Secretary John Tsang Chun-wah has warned of further weakening while Monetary Authority chief executive Norman Chan Tak-lam said an outflow of hot money was to be expected but the peg was intact.
Under the Hong Kong dollar peg, the HKMA must intervene whenever the local dollar falls to the lower end of the trading range at HK$7.85 or rises to the strong end at HK$7.75.
A confluence of forces is pushing down the local currency. The falling yuan and a slowing mainland economy are the leading causes. And as the local market outlook darkens, speculative money naturally flows out. This is especially so when the US Federal Reserve has started raising interest rates.
Since the outbreak of the global financial crisis, an estimated US$130 billion of hot money has poured into the city, helping to boost the stock and property markets to bubble levels as interest rates were kept to zero. Now an outflow is happening.
Certainly for short-term investors and speculators, the unmistakable signal is to sell Hong Kong assets and park money in a perceived safe haven such as the US. The market turmoil on the mainland since the start of the year has not helped matters.
But Hong Kong’s fundamentals remain firm. The 2.4 per cent economic growth predicted for the whole of last year, though weak, is still respectable. Despite the weakening Chinese economy, Beijing’s economic policies still offer benefits for Hong Kong. Its “One Belt, One Road” strategy, much emphasised by Chief Executive Leung Chun-ying in his latest policy address, should provide opportunities for local businesses looking beyond the city. Our membership in the Beijing-led Asian Infrastructure Investment Bank should also help internationalise our business environment. Our foundation on the back of the mainland economy remains strong.