HONG KONG, July 27 (Reuters): Hong Kong must stay alert to the possibility of large capital outflows even as its currency has had unusual strength recently due to inflows for acquisitions, share-dividends and related transactions, a senior official at its central bank said.
Since July 1, the local dollar has repeatedly hit the strong end of the currency peg to the US dollar. That caused the Hong Kong Monetary Authority, the de-facto central bank, to absorb more than $5.6 billion in inflows and inject more than 40 billion Hong Kong dollars into local money markets.
While the inflows will likely boost prices and increase liquidity, Peter Pang, the HKMA's deputy chief executive warned that the turmoil seen in emerging markets last year due to large-scale outflows showed that fund flows could change directions quickly.
"As the US economy recovers and its monetary environment normalises, there remain considerable uncertainties in the future direction of fund flows," Pang said in an article posted on HKMA's website Saturday night.
Pang cited four reasons for the local dollar's recent strength: large dividend payments by local companies, a rise in cross-border deal activity, precautionary demand by banks due to the half-yearly close and likely investor positioning ahead of the launch of a cross-border stock exchange programme.
Citic Pacific's acquisition of its parent's assets and the purchase of local lender Wing Hang Bank by Singapore's OCBC totalled nearly 100 billion Hong Kong dollars (US$12.90 billion) while dividend distributions by locally-listed companies are set to hit 200 billion Hong Kong dollars, according to the HKMA.
HK asked to stay alert despite strong currency
FE Team | Published: July 28, 2014 00:00:00 | Updated: November 30, 2026 06:01:00
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