Date
20 October 2017
Currency wars could lead to more fund flows into Hong Kong, boosting local equities. The property market, however, may not benefit. Photo:HKEJ
Currency wars could lead to more fund flows into Hong Kong, boosting local equities. The property market, however, may not benefit. Photo:HKEJ

How will the currency wars affect Hong Kong assets?

Central banks in many nations and regions have in recent months turned on the liquidity taps to support their economies.

On Tuesday, Australia became the latest to ease the monetary policy as it slashed its key interest rate to a record low of 2.25 percent. Earlier, authorities in eurozone, Switzerland, Denmark, Canada, India and Singapore also loosened their policies.

Such actions have pushed their currencies lower, and led to shifts in global fund flows. Investors securing cheap money in some markets will look for better yields elsewhere in various assets.

Against this background, how will the currency wars affect asset values in Hong Kong?

Linus Yip, chief strategist at Hong Kong-based First Shanghai Securities, expects more inflow of hot money into the city, which will probably give a further boost to the local stock market.

Being an international financial center, capital can move in and out of Hong Kong freely. When investors seek to park their money in safe havens such as the US-dollar assets, some of the funds could flow into Hong Kong as the local currency is pegged to the greenback, Yip told Hong Kong Commercial Daily.

Lukfook Financial’s economic strategist Wong Wai shares Yip’s view.

“The valuation of the Hong Kong stock market is relatively low. There is still room for more upside, and capital is likely to stay in the market for a while,” he said.

Will the inflow of funds push up the city’s housing market as well?

Yip’s answer to this question is a “no”.

As Hong Kong’s property prices are already at record highs, hot money won’t target this asset class directly, he said, noting that potential return on properties at current levels doesn’t look attractive.

Though fund inflows may push up local equities, some scholars say the Hong Kong dollar peg should be reviewed to reduce the impact from a volatile US dollar.

Mo Pak-hung, associate professor in the department of Economics at Hong Kong Baptist University, is one of those calling for a review on the currency peg.

He suggested that Hong Kong could follow the practice of Singapore and peg its unit to a basket of currencies, rather than to the US dollar alone.

Not everyone expects the dollar strength to last. Some, in fact, expect a surprising turn in the second half of this year.

The strength of the dollar so far is mainly based on market expectations that the US Federal Reserve will hike interest rates before the year end.

However, recent data is feeding fears that the US economic recovery may be weaker than expected. A tepid economy could prompt the Fed to postpone rate hikes.

The dollar may start weakening this summer if the economy doesn’t show signs of improvement, according to some analysts.

Given this situation, asset values in Hong Kong could see some churn in the near future. 

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RC

EJ Insight writer

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