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Hong Kong Emigres Seek Milk Tea in Craving for Taste of Home

Kanis Leung wrote . . . . . . . . .

In London, Wong Wai-yi misses the taste of home.

A year ago, the 31-year-old musician was in Hong Kong, earning a good living composing for TV and movies and teaching piano. Today, she makes about half as much in London working part-time as a server alongside her musical pursuits. She chose the job in part because staff meals allow her to save money on food.

It’s a difficult adjustment. And Wong, who left Hong Kong with her boyfriend in January, has turned to a beloved hometown staple to keep her grounded: milk tea. She brings the beverage to parties with Hong Kong friends and gives bottles to co-workers as gifts.

“It’s like reminding myself I am a Hong Konger. It will be fine as long as we are willing to endure the hardships and work hard,” said Wong, who left as part of an exodus that began after Beijing passed a law in 2020 that curtailed civil liberties.

As tens of thousands leave Hong Kong for new lives abroad, many are craving a flavor from childhood that’s become a symbol of the city’s culture: the sweet, heavy tea with evaporated milk that’s served both hot and cold at diner-like restaurants called cha chaan tengs. Workshops are popping up to teach professionals to brew tea like short-order cooks, and milk tea businesses are expanding beyond Chinatowns in Britain.

In Hong Kong, milk tea is an unassuming beverage, something you use to wash down sweet French toast off a plastic plate. It’s so beloved that members of Hong Kong’s protest movement have called themselves part of a “Milk Tea Alliance” with activists from Taiwan, Thailand, and Myanmar, who drink similar beverages.

Following a law that silenced or jailed most political opposition, over 133,000 residents have secured a special visa that allows them to live and work in the U.K. and apply for British citizenship after six years. Official figures have not been released on how many have gone but most recipients are expected to do so, given the visa’s cost.

The pathway was introduced last year in response to China’s 2020 enactment of the National Security Law, which the U.K. called “a clear breach” of the 1984 Sino-British Joint Declaration. The declaration included a promise to retain the former British colony’s rights and freedoms for 50 years after it was returned to China’s rule in 1997.

Exiled activist Lee Ka-wai said that immersing himself at a Hong Kong-style cafe in London with a cup of milk tea was a “luxury.”

The 26-year-old fled Hong Kong in March last year out of fear of being arrested. He is wanted by the city’s anti-graft body for allegedly inciting others to boycott the legislative election in December 2021. As an asylum seeker in Britain, he is not allowed to work and is living on savings.

Even if the taste is right, he said, the feel of a cha chaan teng and the sounds of customers chatting in Cantonese cannot be replicated.

“It’s strange because I can feel a sense of home overseas. But it also has another meaning — there’s something that cannot be replaced,” he said. “What we long for most is to go home and see a better Hong Kong. But we can’t.”

Some emigrants, like Eric Tam, a 41-year-old manager at an insurance company, enroll in milk tea lessons before leaving. Visiting Hong Kong this month, he stocked up on a milk tea blend, a recipe that evolved from British teas in the colonial era.

While tea is easy to find in England, he said, the taste isn’t the same: “British milk tea is just watery milk,” said Tam.

Before moving to Liverpool with his wife and two younger daughters in June, Tam signed up for lessons at the Institution of Hong Kong Milk Tea. The two-year-old organization teaches students skills like pouring tea back and forth between a kettle and a plastic container to enhance its flavor before mixing it with evaporated milk.

Yan Chan, the school’s founder, estimated that about 40% of the 2,000 people who have studied with her were planning to emigrate.

Milk tea only began to emerge as a symbol of the Hong Kong identity over the last 15 years, said Veronica Mak, associate professor at the sociology department of Hong Kong Shue Yan University.

Mak said that many young people began to think about Hong Kong identity after the government removed Queen’s Pier, a landmark from the city’s colonial past, in 2007. Childhood memories, marketing and a fashion for localism came together to make milk tea a totem of Hong Kong culture.

“When you ask young people what kind of milk tea they like to drink, they will tell you it’s the bubble milk tea,” she said, referring to a drink from Taiwan. “But when you come to the identity part … they will not say the bubble tea but the local style milk tea.”

Most milk tea lovers interviewed told the Associated Press that milk tea isn’t political. But Tam said it’s a form of silent resistance.

“We can choose to preserve the culture that we want to keep. It cannot be destroyed even if other people try,” he said.

Contemporary Asian tea culture is catching on globally. Outside Chinatowns, at least five Hong Kong-style milk tea brands have emerged over the past two years in Britain. One set up a pop-up cafe in the trendy London neighborhood of Shoreditch in September, attracting Londoners and tourists as well as Hong Kong emigres.

Eric Wong, a tea wholesaler, began selling bottled milk tea in 2021 after moving to the UK, and offers milk tea workshops. He said he’s making 500 to 1,000 bottles of milk tea a week, and his south London business broke even after about six months. His Trini Hong Kong Style Milk Tea products are available online and at major Asian supermarkets.

The taste of home can provoke strong emotions. A young woman from Hong Kong once shed tears after tasting his tea, Wong said.

Between people planning to leave and growing interest in local culture, Chan is busy. On Nov. 3, nine people attended her class, none of whom had plans to emigrate.

Cooking enthusiast Dennis Cheng had a class with her in late September and practiced the signature pouring while preparing to leave Hong Kong with his wife and children.

He said the taste will help remind him of Hong Kong and friends back home.

“This may help me feel emigrating overseas isn’t really that sad,” he said. “It’s just that I need more time to adapt to it.”


Source : AP

‘No Tears Left’: Hong Kong Property Agents Resort to Desperate Ads

Olivia Tam and Shawna Kwan wrote . . . . . . . . .

Property agents in Hong Kong are resorting to increasingly wry advertising slogans to attract potential buyers during the city’s worst housing slump in years.

“Born in the Wrong Time,” “No Tears Left to Cry,” “The Cut Is Deep, The Love Is Real” — these are just some of the catch lines being used on home listing ads, underscoring the desperation of agents and owners. On one level it’s worked: Social-media sites are now flooded with these over-the-top descriptions. But sellers are still finding it hard to offload properties.

Rising interest rates are weighing on a property market that has already been battered by a population exodus and Covid curbs. Hong Kong’s one-month rate, known as Hibor, has increased to the highest level since 2008 due to the city’s currency peg with the greenback. Expensive borrowing costs coupled with an economic contraction have made would-be buyers cautious.

The number of unsold new homes in Hong Kong increased to the highest in more than 15 years in the third quarter. Even the city’s powerful developers may need to offer discounts to sell vacant units, according to Bloomberg Intelligence.

Ada Chan, a 42-year-old HR manager, recently had to stomach a loss of HK$5.4 million ($690,000) to sell her three-bedroom apartment near the University of Hong Kong for HK$13.3 million. She said it was her biggest loss on property investments. Even with multiple price cuts, it took Chan more than a year and a half to find a buyer for the 500-square-foot (46-square-meter) flat.

Prices of used homes have declined 11% since the beginning of the year. Goldman Sachs Group Inc. is expecting values to plummet 30% through 2023 from last year’s levels.

“I’m not optimistic about the long-term development of Hong Kong,” said Chan. “This is no longer a place where investing in real estate can get you high returns.”


Source : Bloomberg

堅定對香港經濟的信心

蔡洪濱 wrote . . . . . . . . .

香港資本市場近來風雨飄搖,恒生指數一度跌破15000點的回歸前水平。長期堅挺的樓市今年以來也開始下行,表現漸呈疲軟。受疫情和地緣政治影響,外貿和經濟增長乏力;面對激烈的國際人才競爭,也似乎失卻優勢,人才外流有惡化之象。新加坡和香港此消彼長,更引起對香港的普遍擔憂。總之,對特區經濟的悲觀情緒正不斷蔓延。

當前面臨的困難和挑戰確實嚴峻,但香港經濟是否就此沉淪下去?前景變得暗淡無光?

核心優勢仍在

筆者認為恰恰相反。本文用意不在預測股市、樓市何時利空出盡、觸底反彈,也並非無視經濟低迷的困局。觀乎目前的至暗時刻,影響經濟長期發展的根本性因素易受忽略,但事實上,香港的核心優勢依然堅固,在新時代更顯巨大發展潛力。

香港特區的核心優勢為何?一言以蔽之,在於其獨特的制度。「一國兩制」之下,「一國」的基礎築牢後,就需要充分發揮「兩制」的特色。法治、自由市場、國際化是香港穩健制度的三個支柱。只要致力堅守,不斷予以完善和鞏固,就能保障經濟增長。過去幾年,儘管本港經歷了不少風雨,港大經管學院依然每年在全球招聘15至20位優秀學者,而吸引他們前來發展的就是這三個政策支柱;加上超低稅率、得天獨厚的自然條件和生活環境,香港確實是亞洲其他地方難以媲美的宜居城市。

潛力蓄勢待發

以下勾勒本港經濟發展潛力的幾個範疇。

首先,融入國家「國內國際雙循環」新發展格局,可為香港提供無窮商機。香港一直滿足於擔任外貿和金融的中介角色,對於內地經濟發展和市場變化趨勢缺乏深刻理解,可幸這種情況正在發生轉變。專業和商界人士對於了解內地情況的興趣正逐步提高。香港大學北京中心成立一年半以來的活動中,踴躍參與活動的港大校友和香港商界人士愈來愈多。另一方面,內地對香港的看法也有所不同,亦即從2019年之後的負面印象轉為正面積極;舉個例子,近兩年內地學生井噴式報考港大及特區其他高等學府,今年還會大幅增加。

雖然中國經濟同樣面臨種種困難和挑戰,需要透過重大調整和轉型升級,邁向持續增長,但整體經濟規模龐大,雙循環發展戰略中有很多領域可讓香港發揮重要作用。尤其明顯的是大灣區發展,一方面香港具備獨特優勢,可以多作貢獻;另一方面也為特區自身發展,提供一連串戰略機遇。剛剛成立的港大經管學院深圳校區,內設創業及創新孵化中心,眾多初創企業者熱烈申請加入,他們大多是到大灣區創業的香港學生和畢業生。得享香港賦予的國際化視野和資源之餘,又有當地的技術力量和市場資訊,配合良好的創業土壤,假以時日,這些兼具港深兩地優勢的初創幼苗,完全有機會成長為企業界的參天大樹。

大都會展鴻圖

其次,大變局下的世界政治經濟局勢,對香港既是挑戰,更是機遇。中美大國博弈之中,本港難免深受衝擊,前路荊棘滿途。然而危中有機,無論從政治或經濟角度看來,都應該得出這個判斷:香港別樹一幟的地位,未來將成為中國聯通世界更為重要的視窗,為國家的外循環發揮關鍵作用。香港自身的國際化,也正在從被動變為主動。昔日香港總是利用自身國際化環境,以招徠海外資本和人才,不過時移世易,守成的做法無法維持其國際化地位和形象。

特區政府最近一輪疫情防控政策的調整,為恢復與增強國際聯繫創造了必要條件,市民大眾都希望能盡快落實徹底開放的安排。官員最近也紛紛走出去,積極向各國推廣香港、尋求拓展機會,這種「主動國際化」的作為很有必要,也值得讚賞。在政府的積極推動下,國際金融領袖投資峰會本月初剛在港圓滿舉行,超過200名世界金融領袖克服阻力出席,充分展現了香港的國際吸引力。

與此同時,各界和民間也應積極主動加強國際交流和合作,為本港國際化增添活力。港大經管學院今年暑假組成代表團,前赴越南胡志明市和以色列特拉維夫市進行學術交流和教育合作,並參加香港大學設於兩地的中心的相關活動。當地業界同仁表示,疫情爆發之後,這是他們迎來的第一個香港代表團,冀望能盡快恢復與香港的交流協作。由此足見特區的「主動國際化」策略大有可為。

最後,香港內在的經濟轉型和升級值得期待。在上月宣讀的《施政報告》中,特首李家超除了在民生和管治能力提升等主要環節,提出不少有新意的針對性舉措,在人才政策和以創科為經濟引擎的北部都會區發展上,更有一些大膽政策突破和設想。「南金融、北創科」的願景以及文化創意產業的擴展,也令人對香港的前景充滿憧憬。

在港大經管學院9月發表的《香港經濟政策綠皮書2022》中,王于漸教授提出香港足以成為1000萬人口的大都會,廣泛吸引全球多元化人才,以利於經濟轉型和升級。當然,相關政策的實施尚需時日,實現上述願景的過程也必會遇上各種挑戰,但尋求變革和突破已經逐漸成為特區政府與社會的共識,力量已經在積聚,變化一定會發生。有為又有限的政府,高效而包容的市場,兩者在香港結合,必將驅動未來經濟走向長期繁榮。

在局勢變幻莫測的時代,最重要的是堅韌和適變,而這正是獅子山精神的精髓。歷史上每一次香港陷於危機,最終看好香港的都被證明是正確的,筆者寄望也相信這一次奇蹟會如常再次出現。


Source : HKU

Hong Kong Home Prices Plunge Most Since 2016 on Higher Rates

Shawna Kwan wrote . . . . . . . . .

The slump in Hong Kong’s property market is accelerating as borrowing costs rise.

The Centaline gauge of secondary home prices fell 2% in the week ending Oct. 30 from the previous week, the most since March 2016, according to data released on Friday. The drop took the index to its lowest level since December 2017.

Hong Kong property was among the biggest beneficiaries of low global interest rates, with the Centaline gauge surging more than 500% from its 2003 low to last year’s high. That’s now starting to reverse as borrowing costs jump, the economy shrinks and an exodus of residents adds to selling presssure. The secondary home price index has fallen 14% from its 2021 peak.

The city’s one-month borrowing cost, known has Hibor, has climbed to its highest level since 2008 due to Hong Kong’s currency peg with the greenback. More than 96% of mortgages are tied to Hibor, according to September data for new loans by the Hong Kong Monetary Authority.

New home sales may reach just 50% of annual completions this year, the lowest proportion in more than two decades, according to Bloomberg Intelligence. Developers may need to offer discounts in order to sell vacant units, particularly studio flats, where buyer demand is weak, BI said.

Goldman Sachs Group Inc. expects residential property values in the city to plummet 30% through 2023 from last year’s levels.


Source : BNN Bloomberg

Chart: Hong Kong Bank Loan and Deposit MoM (%) in 2022

Source : HKMA

Hong Kong’s Property Developers Will Struggle to Service Their Debts as Interest Rates Soar

From SCMP . . . . . . . . .

Raymond Cheng, managing director of CGS-CIMB Securities, has a sense of deja vu.

With Hong Kong’s housing market struggling, interest rates soaring and buying power faltering amid a slowing economy, the worrisome debt levels of property developers are in the spotlight.

The same was true in the years just before Cheng became an analyst in 2003.

“At that time, they could not make profits from home sales. Certain developers had tight financials, and most made little profit,” he said. “Generally, the whole cycle from 1997 to 2003 was a very difficult phase for Hong Kong developers.”

Home builders’ gearing ratios – a measure of how much of their operations are funded by debt – at that time were particularly high, at 60 to 70 per cent, Cheng said. Many of them had been aggressive in their land acquisitions, their appetite for risk fuelled by the many opportunities in the market in the 1990s.

During the deep correction between 1997 and 2003, when home prices nosedived some 60 per cent, they suddenly found themselves losing money on property sales.

The painful experience of those troubled times was enough to make many of them more financially prudent. Over the next few years, gearing levels fell to about 10 to 20 per cent as the developers reined in their expansion and allocated more of their money to investment properties.

But the low interest rate environment that’s dominated economics since the financial crash of 2008 has fuelled a resurgence of debt.

“It might have made developers feel the cost [of borrowing] was low,” said Cheng. Certain developers seized the opportunity to expand in mainland China, pushing up their gearing ratios once more.

Now, with borrowing costs at a 14-year high and certain to rise further, this could be problematic.

Developers are likely to have a hard time turning a profit as the interest payments on their debt mountains get bigger, say analysts. They are likely to be less aggressive bidding for land, and may even come under pressure to offload assets at lower prices.

“The US interest rate hikes caught developers whose gearing had rapidly increased off-guard,” said Cheng. “It suddenly increased the pressure on their cash flow.”

Home prices declined by 8.1 per cent in the first nine months of the year, reflecting the impact of higher interest rates and the lingering effects of coronavirus restrictions.

Hong Kong property companies have taken on an additional HK$109 billion (US$13.89 billion) of debt in the past three years as they took advantage of low interest rates that lasted until as late as the first half of 2022, when the one-month Hibor (Hong Kong interbank offered rate) – the rate banks charge each other for borrowing money – averaged just 0.2 per cent, according to Morgan Stanley.

The average net gearing, or net debt to equity ratio, of developers and landlords has risen from about 15 per cent five to 10 years ago to 22 per cent now, said Cheng.

New World Development is the most indebted local homebuilder by this metric. Its net gearing stood at 43.2 per cent in financial year 2022, while Henderson Land Development’s was 27.5 per cent as of the end of last year, according to their financial reports.

Link Reit, Hang Lung Properties and Hysan Development also saw their gearing ratios increase in recent years, as they stepped up their capital expenditure and acquisition plans, according to Jefferies.

Hong Kong’s five biggest developers have acquired a combined total of at least HK$121.32 billion of local assets since 2020, according to a tally kept by Colliers based on data of its own and from Real Capital Analytics, the Lands Department and market sources. These acquisitions include government land, urban renewal projects, land premiums, and old buildings purchased through compulsory sales orders.

Henderson, known for frequently taking advantage of compulsory sales, has made at least 13 acquisitions worth HK$70 billion since 2020, according to Colliers’ figures. It has 27 newly-acquired urban redevelopment projects, enjoying 80 per cent to full ownership, according to its interim results.

Notable purchases by Henderson include the HK$50.8 billion Central Harbourfront Site 3 in November 2021 and the government’s Murray Road commercial plot in Central for which it paid HK$23.28 billion in May 2017.

Despite its higher gearing, New World Development ranked fourth in terms of acquisitions, at HK$11.4 billion. For instance, in May it filed an application to buy the 10 to 20 per cent it does not own of three buildings near Times Square in Causeway Bay through compulsory auction, according to Lands Tribunal documents.

In December 2018 it won a 25-year contract to design, build and run Kai Tak Sports Park with the objective to promote sport development in Hong Kong.

The cost of servicing debt is likely to hurt developers in the second half of 2022 and beyond as interest rates continue their upward trajectory, Morgan Stanley said in a report on September 19.

The Hong Kong Monetary Authority raised its base rate to 4.25 per cent from 3.5 per cent on Thursday, the sixth increase in eight months to a fresh 14-year high, in lockstep with the Federal Reserve which is battling sky-high inflation.

Henderson, Hysan and Link Reit’s interest expenses rose by 25 to 29 per cent from a year earlier after new acquisitions added to their debt piles, according to Morgan Stanley.

For New World Development, with floating debt of HK$123 billion, every 100 basis points rise in interest rate pushes up its cash interest expenses by HK$1.2 billion, the American investment bank estimated in another report on October 6.

Developers contacted by the Post sought to play down market concerns about their debt repayments.

“To say that the group’s gearing remains at a high level would be a faulty generalisation,” Henderson’s spokeswoman said.

“Over the past two years, the group’s net gearing has been managed prudently and conservatively at a moderate level of mid-20s in percentage terms.”

A significant portion of Henderson’s debt is in fixed-rate notes and bonds, and the group has arranged interest rate swaps to guard against risks related to the its borrowing, she added.

A spokeswoman for Hang Lung Properties said its net gearing is considered “stable and healthy”, at 26.9 per cent as of June 30.

“Hang Lung will continue to adopt prudent financial discipline,” she added.

New World Development said it has been taking measures to remain “resilient”.

“We have and will continue to proactively manage our net gearing ratio,” said a spokesperson for the company.

“Since FY21, we have successfully controlled capex [capital expenditure] to below our original budget. We will continue to meticulously examine every land acquisition initiative and capex item.”

Indeed, Hong Kong’s developers are unlikely to face the crisis their mainland peers are going through, because they have a higher proportion of rental income, which is less prone to risk.

“Mainland developers’ rental income from investment properties occupies less than 10 per cent, maybe just 5 per cent, of their profit on average,” said Cheng. “The investment property rental income of Hong Kong developers makes up 40 to 50 per cent of profit on average.”

Still, their profitability will undoubtedly be hurt.

Morgan Stanley said it cut its estimates for New World’s earnings per share by 35 per cent and 47 per cent for the financial years of 2023 and 2024, respectively. This mainly reflected higher interest costs, lower development property bookings and a fall in investment property profit, it said in the October 6 report.

Landlords with major development plans or acquisitions may see their profitability squeezed by higher rates, according to Jefferies’ report.

Increases in borrowing costs have an effect on land prices. Expectations of interest rate rises tend to make developers less aggressive at auction.

The Urban Renewal Authority in late October awarded a redevelopment project in To Kwa Wan to Sino Land Company and China Merchants Land for HK$2.39 billion. The price per square foot at HK$8,571 was 9.8 per cent lower than the bottom end of market estimates compiled by Vincent Cheung, managing director of Vincorn Consulting and Appraisal.

The interest rate upcycle has prompted some developers to sell assets. For example, New World Development and Swire Properties have got rid of non-core assets such as car parks.

New World expects to sell around HK$10 billion of non-core assets in the next financial year.

“We will continue to dispose of our non-core assets to retain capital,” said the developer’s spokesperson.

“We’ll have over HK$8 billion of income booked from development properties in FY23. Together with an increase in our recurring income, it’ll more than offset the additional interest expense.”

Disposing of non-core assets is a part of Swire Properties’ strategy to ensure long-term growth, a spokeswoman said in a statement.

“This strategy has put us in a strong position to fuel our HK$100 billion investment plan over the next decade,” she said.

She said 72 per cent of Swire Properties’ borrowings are on a fixed-rate basis, which helps mitigate the impact of the rising interest rates.

The general offloading of assets is a good opportunity for buyers to negotiate lower prices, said Ingrid Cheh, head of Hong Kong real estate at Schroders Capital. Landlords are likely to be more open to price cuts.

Jefferies’ report on October 5 said “the interest rate is the major culprit behind recent property price weakness”.

During past rate hike cycles, the impact on house prices was not as pronounced because the magnitude and pace of the increases were smaller, while a supply shortfall acted as a counterbalance.

This time, the upcycle has coincided with a downturn in the property market.

DBS expects Hong Kong home prices to fall 5 per cent next year. Goldman Sachs, Morgan Stanley, HSBC, JLL and Colliers have all predicted a decline too.

Goldman’s predictions have been the direst. It expects home prices to plummet by 30 per cent by the end of 2023, as sharply increasing interest rates continue to pressure affordability and repel investors from the market.

The government has taken steps to try to buoy the market.

Hong Kong’s Chief Executive John Lee Ka-chiu, in his maiden policy address, announced a refund of the extra stamp duty eligible non-locals pay when buying Hong Kong homes – should they stay for seven years and get permanent residency.

The move came after developers had been lobbying the government to scrap property cooling measures as transactions were expected to fall to their lowest level in three decades.

It was met with some scepticism from property analysts, however, who said refunding the cash at a later date would not make homes any more affordable.

The outlook remains uncertain, according to Kathy Lee, head of research at Colliers.

“There are still a lot of external uncertainties including interest rate hikes and China’s economic growth,” said Lee.


Source : Yahoo!

Explainer – What’s Behind Hong Kong’s Tightening Cash Conditions?

Georgina Lee wrote . . . . . . . . .

A weak Hong Kong dollar and capital outflows have pushed the city’s interbank rates to 14-year highs and drained cash levels to their lowest in two years, sparking investor worries about Hong Kong’s cherished currency peg and its economic health.

Below are some details on the complex policy framework and recent developments surrounding the tight liquidity:

WHY IS HONG KONG ON INVESTORS’ RADAR?

Hong Kong’s aggregate balance, a gauge of cash levels in the banking system, has been declining rapidly since May and is about to drop below HK$100 billion ($12.74 billion) for the first time in two years.

The decline in the aggregate balance has come alongside a drop in the Hong Kong dollar to the weak end of its trading band, driven by aggressive U.S. monetary tightening, capital outflows and intervention by the defacto central bank – the Hong Kong Monetary Authority (HKMA).

That has tightened cash in the economy and driven the one-month Hong Kong Interbank Offer Rate (HIBOR) to a 14-year high.

WHY ARE CASH CONDITIONS SO TIGHT?

A dearth of initial public offerings this year on Hong Kong Exchanges & Clearing’s (HKEX) markets has dampened investor demand for Hong Kong dollars. Total IPO funds raised on the exchange plunged 74% year-on-year to HK$73.2 billion ($9.33 billion) for the first nine months this year, HKEX data shows.

There has also been an outflow of foreign investment from Hong Kong equities, funds and bonds. Their combined balance in Hong Kong’s international investment position, which is the external balance sheet, dropped by 3% to HK$3.99 trillion as of June compared with the end of 2021, official data shows.

Hong Kong dollar interbank liquidity has tightened accordingly. The aggregate balance, a key measure of the interbank cash balance, has also been depleted by 40 rounds of currency intervention by the HKMA this year.

HOW ARE HONG KONG INTEREST RATES DETERMINED?

Under Hong Kong’s Linked Exchange Rate System, the Hong Kong dollar is pegged in a tight band between 7.75 and 7.85 to the U.S. dollar, and the HKMA is committed to intervene to maintain the band.

As outflows from Hong Kong picked up, the HKMA has been forced to buy the local dollar and sell U.S. dollars to prevent it from weakening past 7.85.

HKMA’s buying of Hong Kong dollars shrank the aggregate balance from HK$233.49 billion in June to HK$100.03 bln on Thursday, resulting in higher Hibor rates.

The overnight Hibor, which reflects financial institutions’ demand for cash, spiked to 3.028% on Oct 31, the highest in nearly three years. Hibor is influenced mainly by capital flows in and out of Hong Kong, as the HKMA does not set interest rates.

IS THE FALL IN BANKING SYSTEM LIQUIDITY A CAUSE FOR CONCERN?

While foreign exchange reserves are down $33 bln since May, they remain ample at $419.2 billion. Also, with fiscal buffers in the form of exchange bills, the HKMA can fend off any notion of pressure on the currency peg.

Moreover, Hong Kong’s monetary Base, at HK$1.9 trillion, is fully backed by U.S. dollar assets.

But home owners with mortgages will face larger interest payments as Hibor, which is the benchmark that banks use, rises. The HKMA said cases of negative equity in Hong Kong’s residential mortgage loans registered a near ninefold increase in the third quarter from the prior quarter.

HOW FAR WILL HKMA LET THE AGGREGATE BALANCE FALL?

The last time the aggregate balance fell below HK$100 billion was in June 2020, and before that during the last U.S. rate-hike cycle from 2017 to 2019, when the aggregate balance hit HK$54 billion.

The impact on the HK dollar peg had been muted, the HKMA said.

Even if the aggregate balance were to drop to zero, the Linked Exchange Rate System will not be affected as HKMA can mobilise its foreign exchange reserves to support the peg.


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