The Hong Kong dollar has reached its five-month high on this Thursday despite the on-going protests. Some finance analysts are convinced that the gains are coming from profit taking as investors has started unwinding “carry” trades.
This type of trade usually involves borrowing money, or other financial assets, with the low interest rates in Hong Kong, for instance, and funding the purchase made in US dollars.
That might also be reasoned by the tensions in the Chinese-rules city cooling down in comparison to what was happening in the last few months when the violent anti-government demonstrations were non-stop.
The Hong Kong dollar took the position of 7.7980 per US dollar which denominated the strongest rate since July 8, 2019. It is now back to the greenback at a range of 7.75-7.85 per dollar.
Global head of flow FX at Nomura in Singapore, Stuart Oakley, stated:
“The whole market has been long dollars and short Hong Kong dollars, given all of the negative events we’ve seen there over the last several months.”
He also added:
“I think a lot of those positions are being closed out or stopped out as people want to consolidate their positioning and reduce risk into the holiday season.”
Meanwhile, Hong Kong’s leader, Carrie Lam, states that reshuffling of the city’s Cabinet is not her main priority, she is looking forward to restoring law and order completely. This Saturday Ms. Lam is supposed to depart for a regular meeting to Beijing, where she will summarize the main points of by far the biggest financial crisis in decades.
The Hong Kong Monetary Authority (HKMA) believes that money markets continue to operate efficiently, as well as the city’s foreign exchange.
“While Hong Kong dollar interbank interest rates will continue to be affected by changes in the supply and demand of Hong Kong dollar funding, the interbank market has been operating in an orderly manner.”
One of the best rating agencies, Fitch, said that the prolonged protests, of course, are weakening Hong Kong’s position as a stable international business hub and a weaker view of its governance might also impact its credit rating.
Back in September, Fitch downgraded Hong Kong’s foreign currency issuer default rating from “AA+” to “AA”. However, nevertheless, Fitch is convinced that while Hong Kong’s short-term outlook is far from being anyhow promising, the medium-term prospects are not that bad. And that was quite predictable with the first recession that happened in Hong Kong in over a decade and with local businesses being under pressure from both protests and protracted US-China trade war.
Moreover, the recent listing of Alibaba on the Hong Kong stock exchange shows once again that Hong Kong is still the “flagship off-shore financing center” for Chinese companies.