Yu Weiwen, President of the Hong Kong Monetary Authority, said at a press conference on January 27 that as inflationary pressures are greater than market expectations, the world‘s major central banks may speed up the pace of interest rate hikes, worrying that it will lead to large fluctuations in the asset market.
He said: “Continued high inflation and normalization of monetary policy in 2022 will be two key factors affecting financial markets. Global stock markets have risen sharply in the past three years, and valuations are already at a high level, but the global economy is recovering and corporate earnings are growing. There has been a slowdown, new variants of the virus, geopolitical situations and other factors continue to bring uncertainty to the global investment market.”
“In January this year, the market has been very volatile. Taking the S&P 500 as an example, the decline in January reached 10%, and the volatility is very high,” he said, but stressed that the financial market still maintains a very orderly operation and has not yet seen the until a problem occurs.
Hong Kong dollar rate hike lags
The Fed’s latest interest rate meeting announced that it will keep the federal funds rate unchanged at 0 to 0.25%, and said that it will end its bond purchases in early March, and will soon raise interest rates appropriately. It does not rule out the possibility of interest rate hikes at each meeting.
A spokesman for the HKMA said that as U.S. inflation remained high and employment continued to grow strongly, the Federal Reserve announced to accelerate the pace of tapering of asset purchases and will complete debt reduction in early March. With rising inflation risks, the Fed expects that rate hikes may be needed soon and that monetary policy may be tightened at a faster pace than in the last contraction cycle.
The spokesman pointed out that under the linked exchange rate system, the level of Hong Kong dollar interest rates will generally approach the US dollar interest rate, and it will also be affected by the supply and demand of Hong Kong dollar funds in the local market. The Hong Kong money market continued to operate in an orderly manner, the banking system was sufficiently liquid, and the exchange rate of the Hong Kong dollar remained stable. The HKMA will continue to monitor market conditions and maintain monetary and financial stability in accordance with the Linked Exchange Rate System.
When asked about the impact of the Fed’s interest rate hike on the Hong Kong market, Yu Weiwen told the media that under the linked exchange rate system, the Hong Kong dollar’s interest rate direction must be consistent with the US dollar in the long run, but the Hong Kong dollar’s interest rate is also affected by the supply and demand of the local currency.
He pointed out that the current aggregate balance of the Hong Kong banking system is about 360 billion Hong Kong dollars. “The Federal Reserve needs to raise interest rates to a certain extent, and there is room for arbitrage between the interest rate difference between the two places. When the Hong Kong dollar against the US dollar touches the weak-side guarantee level of 7.85, the HKMA will enter the market to buy Hong Kong dollars. Selling U.S. dollars will lead to a decline in the aggregate balance of the banking system, and the Hong Kong dollar interbank lending rate will only rise, so there will be a certain lag.”
Hong Kong stock investment lost 21 billion Hong Kong dollars last year
Due to the lagging performance of the Hong Kong stock market last year, the Hang Seng Index fell by about 14% for the year, dragging down the investment performance of the Hong Kong Exchange Fund.
Yu Weiwen said that as of the end of December last year, the investment return of the Hong Kong Exchange Fund was HK$170.5 billion last year, a year-on-year decrease of 23% and the lowest in three years. Among them, the return on investment in bonds was HK$12.4 billion, the return on investment in stocks was HK$47.4 billion, and the return on investment in foreign exchange was HK$16.8 billion.
He revealed that the return on investment in overseas stocks last year was HK$68.4 billion, but investment in Hong Kong stocks recorded a loss of HK$21 billion. The Exchange Fund’s portfolio returned 3.7% last year, while the backing portfolio returned 0.4%.
The Hong Kong Exchange Fund is the financial reserve of the SAR government to support the stability of the exchange rate of the Hong Kong dollar. The Exchange Fund not only directly or indirectly affects the exchange rate of the Hong Kong dollar, but is also an important tool to maintain the stability and integrity of Hong Kong’s monetary and financial system and maintain Hong Kong’s status as an international financial center. The Exchange Fund has played an extremely important role in every banking instability or financial crisis in Hong Kong over the past few decades.
For more information, please download the 21 Finance APPReturn to Sohu, see more
Editor:
Statement: The opinions of this article only represent the author himself, Sohu is an information publishing platform, and Sohu only provides information storage space services.