From Breakingviews - Ackman’s Hong Kong short is logical, not likely
Ackman has better timing than Bass. Hong Kong's fortunes are tied to the mainland, where the central bank is cutting rates to stem the fallout from Covid-19 lockdowns and crashing property and exports. The financial hub is already in a recession and grappling with everything from a dearth of initial public offerings to capital outflows that are further denting demand for the local dollar. Yet the currency peg means authorities must follow the U.S.
A secular decline in Hong Kong might ultimately sabotage the peg at some point. Since June, the HKMA has already drained two-thirds of Hong Kong's aggregate balance, a gauge of cash levels in the banking system, to a two-year low of HK$100 billion . On the other hand, Hong Kong is a city, not a country. To abandon the peg for an untested construct would introduce uncertainty to China’s only hard-currency financial market, its primary function from Beijing’s perspective. In October, Egypt abandoned its dollar peg as part of a deal with the International Monetary Fund.
The Hong Kong dollar is pegged in a tight band between 7.75 and 7.85 per dollar and was last at 7.8178 per dollar.
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