Hong Kong’s Financial System Has Never Faced a Test Like Ant
The Ant Group logo and the Alibaba Group logo are displayed behind a reception desk in Hangzhou, China. (Photographer: Qilai Shen/Bloomberg)

Hong Kong’s Financial System Has Never Faced a Test Like Ant


Hong Kong’s newfound position as the market of choice for huge Chinese stock sales is being put to the test by Ant Group Co.

While Beijing encourages Chinese firms to reduce their reliance on Wall Street, Hong Kong’s $5.9 trillion stock market is becoming the main beneficiary. But it’s not without cost.

The relatively small size of the former British colony’s financial system, its open capital borders and pegged currency makes the city vulnerable to large flows of money in a way other large financial centers are immune. Demand for share sales can spur central bank intervention in the currency market and flood the city with liquidity, creating havoc with interbank lending rates.

The potential benefits are large. Ant’s initial public offering will ultimately accelerate the stock benchmark’s transformation from an underperforming old-world gauge to a dynamic index that better reflects China’s growing technological prowess. While there are risks to any hyped-up listing, the massive demand for Ant’s shares will likely prompt more firms to follow suit and sell shares in Hong Kong, boosting its market capitalization and making its stock market an increasing rival to New York.

Here are some charts showing the impact of Ant’s IPO on Hong Kong’s financial system.

Currency strength

One of the clearest upshots from the inflows into Hong Kong has been the sustained strength of the Hong Kong dollar, which has held near the strong end of its currency peg with the greenback as demand for local currency soared to a record. When Ant stopped taking orders from big investors, the local dollar retreated from the 7.75 per greenback level, though analysts point out that demand for Ant’s shares and future listings by other Chinese companies should continue to boost demand.

Hong Kong’s Financial System Has Never Faced a Test Like Ant

Forced intervention

Hong Kong’s de-facto central bank has taken unprecedented steps to flood the banking system with liquidity as investors piled into Ant Group, stepping into the market a total of 85 times since April and selling about HK$383 billion ($49.5 billion) to defend the currency peg.

As a result, the interbank liquidity pool was lifted to the largest on record at more than HK$450 billion. Analysts have said that the Hong Kong Monetary Authority is expected to sell extra debt to soak up liquidity as funds return following the IPO.

Hong Kong’s Financial System Has Never Faced a Test Like Ant


Trading activity in Hong Kong on Thursday is likely to rival the previous milestone set more than five years ago by Hong Kong Exchanges & Clearing Ltd., which hit two record trading days after mainland-based fund managers used a change in regulations to increase their holdings.

Ant’s IPO may break that record of nearly HK$292 billion. Bidding among retail investors was so intense in Hong Kong that one brokerage’s platform briefly shut after being overwhelmed by orders. Demand for the retail portion in Shanghai exceeded initial supply by more than 870 times.

Hong Kong’s Financial System Has Never Faced a Test Like Ant

From Old World to tech contender

The city’s benchmark Hang Seng Index has an abundance of old-economy financial stocks, taking up more than 40% of the index weighting. That makes it look relatively outdated at a time when China’s tech giants have increasing sway. Last week, the index compiler has made it easier for Ant to be included in some of its gauges, and the company is expected to eventually be included in the benchmark.

Hong Kong’s Financial System Has Never Faced a Test Like Ant

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