Hong Kong dollar drops most since 2011 as bets mount on peg's end

One likely round of "double plays on HK$? Who will win this round?

Hong Kong dollar drops most since 2011 as bets mount on peg's end

HONG KONG (Jan 14): The Hong Kong dollar sank by the most in four years and speculation mounted in the options market that the city's 32-year-old currency peg will break as investors lose confidence in Chinese assets.
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http://www.theedgemarkets.com/sg/article...t-pegs-end

Don't hold your breath for the HKD peg to drop anytime soon. The peg has survived many rounds of crisis and many speculators beaten back starting with the AFC etc and the last one the GFC. This time the pressure is not as great as the previous crisis or the last GFC. the peg will drop or revised(maybe to a basket currency case) when it is least expected and no speculators betting on it is my guess.

(15-01-2016, 11:24 AM)Jacmar Wrote: Don't hold your breath for the HKD peg to drop anytime soon. The peg has survived many rounds of crisis and many speculators beaten back starting with the AFC etc and the last one the GFC. This time the pressure is not as great as the previous crisis or the last GFC. the peg will drop or revised(maybe to a basket currency case) when it is least expected and no speculators betting on it is my guess.

Agree. The movement of the HK$ headlined in the article was tiny in comparison with the falls that many other currencies have exhibited. However, the key issue is later in the article, the effect on the stock and housing markets in Hong Kong. Selling of Hong Kong dollars will suck liquidity out of the markets, which are already falling. The housing market has only just turned down, and will be hit by a combination of reducing liquidity, increasing supply and potentially increasing interest rates. Good news for younger workers who were priced out of the market. I wonder if we will see a repeat of the 70% fall seen 1997-2003? A 70% fall from late 2015 would still see prices at nearly double their 2003 lows, based on prices in our estate.

China Government agreed to allow Hong Kong to remain under the "one country 2 systems " economic policy and to operate for 50 years from 1997.

So in theory HK Laws written in English, separate HK$ Currency plus HKD/USD peg, High Land Cost and No Tax on Share Dividends should continue until 2047.

i don't think hkd is overvalued anyway. in the past few years, currencies like euro, sgd, jpy are overvalued against hkd ...

(19-01-2016, 06:00 PM)fundamentalman Wrote: i don't think hkd is overvalued anyway. in the past few years, currencies like euro, sgd, jpy are overvalued against hkd ...

it will be overvalued once their property bubble pops, economy grinds to a halt and yuan devalues more.

Severe riot on Monday night in Mong Kok

http://www.reuters.com/article/us-hongko...SKCN0VH28E

Nearly 90 police officers hurt. Looked horrendous on TV news last night.

'Localist' leaders - advocating independence for Hong Kong, are reported by some sources as being involved. Some opposition politicians preferred to blame the current government than the rioters. It was a major escalation from the 'Occupy' movement of last year. If there is further escalation, how long can Beijing stand by? They may have signed up for one country-two systems, but if public order and the rule of law break down, they may feel that there is no option but to intervene - and there is a significant garrison on hand in various old British Army barracks in Hong Kong. Many of the richest 10% of Hong Kongers have foreign passports. In the worst case there could be a big line up for one way flights at CLK, and a lot of money heading offshore. The peg's automatic stabilisers may well hold, but, if there is a big outflow, at the cost of huge interest rates and a monster property market crash. Let's hope it never comes to that.