Hong Kong stocks seen under ‘temporary’ pressure amid currency depreciation, capital flight: Daiwa
- Wide interest-rate gap to keep stoking carry-trade arbitraging, pressuring the local currency value in the short term: Daiwa
- Return of funds from mainland China will soften the blow, and investors can expect a recovery in the second half, analyst says
The widening gap between local and global interest rates has resulted in sustained carry trades and weakness in the Hong Kong dollar, Patrick Pan, an analyst based in Hong Kong wrote in a note to clients on Tuesday. “Active funds have also reported a mild outflow from Hong Kong equities,” he said.
The city suffered US$29 billion of outflows in February, versus US$64 billion of net inflows in the preceding three months, according to the note, which cited flow data published by EPFR Global.
“We perceive the wide [interest-rate] spreads and investors’ conservative outlook on China’s post-Covid recovery as key reasons behind a sustained weakness in the Hong Kong dollar,” he said. As carry trades diminish the gap, “we believe the spreads, weak Hong Kong dollar and tepid capital inflows are temporary”, Pan added.
05:31
Hong Kong Monetary Authority chief Eddie Yue on future of city’s economy amid higher interest rates
The Hang Seng Index has struggled for momentum for several reasons apart from the capital flight, including major selling by corporate insiders at Tencent and BYD. Since peaking this year on January 27, the stock benchmark has fallen 9 per cent through this week. The MSCI China Index, the broadest measure, has weakened about 10 per cent.
