Stocks in Hong Kong surge due to optimistic anticipation of foreign entities purchasing domestic assets.
Taking a Look at Hong Kong's Stock Market Scene
The Hang Seng Index got a boost this Tuesday morning, climbing 90 points or 0.4%, reaching 22,595 by 10am local time. On the other hand, the Hang Seng Tech Index took a dip, dropping 0.5%. Over on the mainland, the CSI 300 Index saw a 0.6% increase, while the Shanghai Composite Index rose about 0.5%.
In the heart of the city, the Hong Kong Monetary Authority (HKMA), Hong Kong's de facto central bank, intervened for the third time in four days to maintain the Hong Kong dollar's peg to the US dollar. This move was prompted as the Hong Kong dollar reached the strong end of its trading band. The city's improving equity investment and the appreciation of Asian currencies against the US dollar were significant factors.
On Tuesday, the HKMA sold a record HK$60 billion (US$7.74 billion) worth of the local currency and bought US$7.8 billion at an exchange rate of HK$7.75 per US dollar, according to the HKMA's statement.
Meanwhile, US stocks saw a drop on Monday, as the S&P 500 ended its longest rally in about 20 years. This movement came as traders reevaluated rate-cut expectations amid escalating trade uncertainties.
Interestingly, the HKMA's repeated interventions to defend the currency peg were a response to sustained capital inflows putting pressure on the Hong Kong dollar, pushing it toward the strong end of its trading band (7.75 HKD/USD). Key drivers include interest rate differentials, with HKD-denominated assets offering higher yields compared to USD assets, and geopolitical safe-haven demand, as investors searched for stability in Hong Kong's financial markets amid global economic uncertainty.
In summary, the HKMA's interventions over the past few days amounted to over HK$116 billion in liquidity injections, with the goal of preventing the Hong Kong dollar from breaching its peg's upper limit, which could disrupt trade and financial stability. The HKMA sold HKD and bought USD to increase the local currency supply, countering upward pressure on the exchange rate.
- The HKMA's repeated interventions to defend the currency peg in Hong Kong are partially due to the higher yields offered by HKD-denominated assets in comparison to USD assets within the finance sector.
- Despite the Hang Seng Index getting a boost on Tuesday, the Hang Seng Tech Index showed a decline, while the HKMA sold a record HK$60 billion worth of local currency to maintain the Hong Kong dollar's peg to the US dollar.
- As the Hang Seng Index and mainland Chinese indices saw fluctuations, US stocks suffered a drop on Monday, partially due to reevaluated rate-cut expectations amid escalating trade uncertainties, and this contributed to the pressure on the Hong Kong dollar and the need for interventions by the HKMA.
