Hong Kong Markets Roiled by Interbank Rate Squeeze Amid Protests
(Bloomberg) -- Hong Kong stocks tumbled and the currency soared as interbank interest rates jumped amid protests that closed roads in the city’s financial district.
The Hang Seng Index fell 1.7% at the close, with local property developers among the biggest losers, while the Hong Kong dollar strengthened as much as much as 0.26%, the largest gain in seven months. The one-month interbank borrowing cost, known as Hibor, rose 29 basis points to about 2.42%, the highest since 2008.
While some analysts attributed the tighter liquidity to seasonal demand for cash such as dividend payments, others said the protests -- aimed at preventing the passage of a bill allowing Hong Kong to extradite its citizens to mainland China -- could be spurring concern about potential capital outflows. The squeeze has driven up the cost of shorting the Hong Kong dollar, which also contributed to the one-day jump.
“Recent political events in Hong Kong are affecting investors’ confidence on the future of the city,” Springwaters Financial Securities Ltd. Hong Kong-based strategist Sam Chi Yung said by phone. “A stronger local dollar may hurt exporters while surging Hibors mean higher funding costs for companies with more debt.”
The city’s legislative chief postponed Wednesday’s debate to an unspecified time after thousands converged on the legislature, blocking roads in tactics similar to 2014 Occupy demonstrations. Police fired tear gas in the afternoon, leading to some apparent injuries among protesters and officers. U.S. House Speaker Nancy Pelosi threatened legislative action in Congress to "reassess" whether Hong Kong is sufficiently autonomous.
New World Development Co., Wharf Real Estate Investment Co. and Sun Hung Kai Properties Ltd. all fell at least 3.1%. Developers are sensitive to Hong Kong’s rising borrowing costs, and rallied earlier in the year on expectations the Federal Reserve would cut interest rates. Chinese Internet giant Tencent Holdings Ltd. retreated 2.1% as the biggest drag on the Hang Seng China Enterprises Index, which lost 1.2%.
Among other stocks moving in Hong Kong, Sunny Optical Technology Group Co. dropped 6.1% and AAC Technologies Holdings Inc. lost 3.4%. Citigroup cut its price target on Sunny, citing risks from a U.S. ban on Huawei Technologies Co.
Hong Kong’s two benchmarks were Asia’s worst performers in an otherwise quiet session in the region. The Hang Seng Index was only just recovering from a rout that had made it one of the world’s worst performing major benchmarks in May.
"Uncertainty on local policies will confuse investors and affect the flows in and out of Hong Kong stocks," said Ronald Wan, chief executive of Partners Capital International Ltd. "Investors now need to ponder whether or not to pull out of the market given the local events and global factors including the trade war."
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