From Breakingviews - Hong Kong’s dollar stress gets more fundamental
The wide yield spread between U.S. government debt and the Asian hub’s equivalent has forced the monetary authority in the special administrative region of China to repeatedly intervene to prevent the currency from crossing the weak end of its official trading band of between 7.75 and 7.85 per dollar. In the short term that’s manageable, but it highlights investors’ deeper concerns about the city’s economic future.
Some foreign financiers, including Pershing Square boss Bill Ackman, argue Hong Kong’s financial system can’tand question its rationale. The system, in place since 1983, effectively links local interest rates to American monetary conditions, so Hong Kong was forced to hike even as its China-facing economy contracted for four consecutive quarters in 2022.
is treading water; up barely over 1% this year, it’s one of the world’s worst-performing major stock exchanges, Refinitiv data shows. Private equity interest in China has plunged and cumulative northbound flows through the Stock Connect equity trading schemein April. Both are bad news for the Asian financial entrepôt, which benefits from channelling money into the People’s Republic. Officials have financial tools to maintain ample liquidity in the system.
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