Saturday, November 3, 2012

Stocks DD Cites: HK monetary authority continues to sell Hong Kong dollar

Read, understand and consent to the blog's DISCLAIMER here before proceeding to read the article  (Very good article)

QUOTE "We have no plans to change the Hong Kong dollar peg," Chan said in response to a question from a legislator. The 29-year-old peg has come under pressure recently, as the former British colony, along with other Asian centres, became favoured destinations for funds unleashed by major quantitative easing measures in the U.S., Europe and Japan
In the meantime, the most worrying aspect of the surge of funds into Hong Kong has been the effect on property prices, which have risen about 20 percent in the first nine months of this year, with even small and medium-sized units climbing some 21 percent. Fearful of the social impact, the city introduced new measures to curb runaway prices last Friday, including a 15 percent tax on overseas buyers and an increase of the stamp duty onshort-term transactions.
“The government is trying to do something about residential property price inflation, but it is very difficult against the backdrop of the money that is coming into Hong Kong,” said Cusson Leung, analyst at Credit Suisse. “We believe most of the investment demand will shift from the residential market to the commercial property market.”
During the past two weeks, the Hong Kong Monetary Authority sold a total of $3.5 billion worth of Hong Kong dollars into the market via nine interventions to curb the strength of the local currency.
My take: Aside from the property inflation, the consumer inflation is still very benign at <4%. The monetary authority's plan to restrict hot money from chasing properties should be pretty effective idea.  So it is my opinion, the authority will be able to continue to target policy on property inflation to ensure the easy USD money post-quantitative easing(from the HK exporters and overseas investors from mainland China) does not enter the Honk Kong property market. They could technically continue to sell HKD and buy and hold USD for as long as they want and maintain the current dollar peg rate.

Here is Ackman's Sept 2011 thesis on Hong Kong dollar->

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