Hong Kong Dollar Peg Defense Tops $13 Billion as Demand Surges

Demand for Hong Kong dollars is intensifying in the face of an increasingly politicized environment, with mainland buying helping to buoy both the pegged currency and local stock market.

The city’s de facto central bank sold HK$13.4 billion ($1.7 billion) to purchase the greenback on Thursday, taking the total it has spent this year to keep the local currency from strengthening further to $13.5 billion.

Some Trump aides are considering plans to undermine the peg mechanism in retribution for Beijing’s crackdown on civil liberties in the former British colony, Bloomberg reported Wednesday. Mainland-based investors showed their support for the city through buying more than $1 billion worth of Hong Kong shares on the day.

Hong Kong Dollar Peg Defense Tops $13 Billion as Demand Surges

The events show how the city’s financial system is increasingly being caught up in the rivalry between Washington and Beijing. For now, Hong Kong’s markets seem immune to the tensions. Red-hot Chinese equities, a stronger yuan and low valuations have helped push Hong Kong stocks into a bull market. Mainland purchases of local equities since Beijing first announced plans for Hong Kong’s controversial security law have climbed over $9 billion.

“Bullish sentiment is pushing short-term funds and liquidity into Hong Kong,” said Banny Lam, managing director at CEB International Capital Corp. “China’s stock market is very hot and you see a lot of people using the stock connect to buy these shares. All these factors are attracting liquidity.”

The Hong Kong dollar traded at 7.75 versus the greenback at 5:48 p.m. local time Thursday. The Hang Seng Index rose 0.3% at the close.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.