Todd Bishop
The Sino-US trade war has intensified, and the revision of the Fugitive Offenders Ordinance has caused an uproar. After the international crocodile slammed the Hong Kong dollar, the Internet has recently expressed its remarks that “the whole people will marry the Hong Kong dollar” and change the US dollar. For a time, the Hong Kong dollar is like “inside and outside the enemy.”
Although Hong Kong has a linked exchange rate system, the general exchange rate is between HK$7.8 and US$1. It makes people feel that there is no difference between “Hong Kong Paper” and “US Dollar”. However, there is also a floating range for the exchange rate of the Hong Kong dollar against the US dollar, which is not fixed at the 7.8 level. From an investment perspective, experts believe that retail investors want to buy dollars in Hong Kong dollars, and pay attention to the two “risks” in operation!
The Hong Kong dollar is changed to the US dollar.
It should be noted that under the linked exchange rate system, the exchange rate of the Hong Kong dollar against the US dollar is not a “single piece”. The exchange of the two currencies also has a floating range. It is not fixed at the level of 7.8, but the up and down volatility will not exceed 500 pips. The strongest Hong Kong dollar will not exceed 7.75. The weakest will not be higher than 7.85.
However, this is only a theoretical price. For retail investors, it is more concerned about the bank’s foreign exchange rate. Because banks buy and sell currencies, they also have to “cross the river and wet their feet”, meaning that there is a difference in exchange, so retail investors will take out the Hong Kong dollar and buy the US dollar. In theory, there has been a “loss”.
Take HSBC’s yesterday (19th) exchange rate as an example. The bank’s dollar selling price is 7.8652, while the buying price is 7.7891. If it is worth 100,000 Hong Kong dollars to buy about 12,714 dollars, and it will be sold on the same day. It can only recover about HK$99,030, a difference of HK$970. As for another BOC Hong Kong, the difference between the “Buy and Sell” US$100,000 for the HK$100,000 difference is 370 HKD.
Retail investors “carrying” to make a very small profit
Of course, if retail investors are not “greedy”, but they are determined not to move the US dollar, and the exchange rate difference can be enough. The more critical issue is whether the funds have a good way out. The most common and easy operation is to deposit into the bank to make a dollar deposit, but what about the Hong Kong dollar and the US dollar? Is this “carrying transaction” worthwhile?
Originally, the United States raised interest rates four times last year. Banks in Hong Kong raised the interest rate of US dollar time deposits at different rates at the beginning of the year, attracting retail investors to exchange dollars for deposit. However, with the disappointment of interest rate hikes in the United States, the market estimates that there may even be interest rate cuts. In addition, the recent high-interest rate of Hong Kong dollar deposits has led to a significant reduction in incentives for “carry-trading transactions.”
Based on a deposit of 100,000 Hong Kong dollars for one year, the current interest rate of Hong Kong dollar time deposits of BOC Hong Kong is 1.95%, and the US dollar deposits are 2.35%. The difference between the two is 0.4%. The former pays 1,950 yuan. The latter receives Interest 2,350 yuan, the difference is about 400 yuan, but if you consider the exchange difference of 370 yuan, the difference between the deposits is only 30 yuan.
Hong Kong dollar has a chance to return
Li Ruofan, an economist at Huaqiao Wing Hang Bank, believes that from a revenue perspective, the Hong Kong dollar is a better choice. She pointed out that according to the recent comments of the Fed, the market is expected to cut interest rates, and the high-interest rate of the US dollar will soon end. “The chances of reducing the generosity are too big, and there is not much room for generosity.”
On the contrary, due to the short-term “interference” in some markets, including the dividend payout of Chinese companies from June to July, a large amount of Hong Kong dollars is required, which requires banks to have large reserves. Therefore, “the recent interest rate of the Hong Kong dollar is high” and the bank’s interest rate is “high”. Li Ruofan expects that there will be no major adjustments in the interest rate in the second half of the year, so the high-interest rate of the Hong Kong dollar in the year will be “made too much.”
At present, the Hong Kong exchange enterprises are at the 7.82 level, which is close to the weak exchange guarantee level. Wang Liangxiang, managing director of DBS Hong Kong’s Treasury market, believes that the Hong Kong dollar will have a stronger chance of being affected by the increase in interest rates. He pointed out that factors such as the half-year settlement, the issuance of virtual banks, and the return of China’s stocks will attract funds to flow into Hong Kong. Wang Liangxiang explained that Chinese investors used to arrange a lot of US stocks through QDII (qualified domestic institutional investors). With the listing of Alibaba and other Chinese stocks, it is expected to attract these “North Water” through Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. Buying shares in Hong Kong to bring demand to the Hong Kong dollar. In addition, in the past, Hong Kong and the United States had a poor interest rate, which attracted a lot of carrying trades, that is, buying US dollars and Hong Kong dollars. However, the interest rate of homes increased, and many professional carry-over activities were ousted. “There is a limited amount of Hong Kong dollars. The Hong Kong dollar is extremely weak.”
Is the Hong Kong dollar stable?
On the other hand, the Sino-US trade war, coupled with the unstable political situation in Hong Kong, has another big household screaming for the short-selling Hong Kong dollar. If the linked exchange rate collapses and holds the US dollar, can it be “escaped”? Wang Liangxiang is relatively “quiet”. He explained that a key operation of the linked exchange rate is that when the Hong Kong dollar is too strong or too weak, the Hong Kong interest rate will be “up and down”. For example, when the Hong Kong dollar hits the weak exchange rate, the HKMA may buy Hong Kong dollars and sell out. The US dollar intervened and will not buy the Hong Kong dollar in the market, and will not inject capital into the market. As the market Hong Kong dollar decreases, the interest rate of the Hong Kong dollar will naturally rise to support the Hong Kong dollar exchange rate.
Wang continued that although interest rates have risen, there is an opportunity for Hong Kong stocks and the property market to have downward pressure, but it is expected to be only a short-term effect, which may not last long. The reason is that when interest rates rise and asset prices fall, it will eventually attract funds back and buyback. Assets, Hong Kong dollars.
He also thinks that it is not easy to make a substantial depreciation of the Hong Kong dollar. As Hong Kong’s foreign exchange reserves are sufficient, the HKMA has the ability and determination to defend the Link. At present, Hong Kong’s official foreign exchange reserve assets amount to US$437.8 billion, which is enough for Hong Kong to pay foreign currency. “Hong Kong’s trade deficit is not so high. Generally speaking, the reserve has to pay 36 months of import. This is definitely not a problem!” In addition, Wang Liangxiang said that Although the balance of the banking system in Hong Kong is only over HK$50 billion, banks hold a large amount of Exchange Fund Bills. When they are short of money, they can withdraw cash or liquidity at any time.
