Boiling Point
- Source: Global Times
- [20:32 June 11 2009]
- Comments
By Guo Lu
The Hang Seng Index rose 717.59 points to finish at 18888.59, soaring 66 percent from its lowest level of 11344.58 on March 9. Photo: ImagineChina
A popular game among China and Hong Kong market watchers for the past two weeks has been guessing if the speculative capital (or "hot money" in Chinese terms) in Hong Kong has been effectively absorbed. An optimistic view of the mainland's economy resulted in a flood of the hot money into Hong Kong in May and reached $10.9 billion by May 31, Citibank's research revealed on June 1.
“Billions of US dollars flooded into Asia money market funds through BNP Paris during the past six to nine months, and 20 to 30 percent of them were rushing into Hong Kong,” said Terence Lam, BNP Paris general manager director of Asia Asset Management.
One clue from Citibank’s report shows the hot money is waiting for a second wave, though the Hong Kong Monetary Authority (HKMA) has temporarily curbed it by issuing new exchange fund bills that amount to HK$46.1 billion ($5.9 billion) on June 2. The exchange fund bills allow banks to purchase foreign currencies with Hong Kong dollars.
The HKMA announced last Tuesday that the decision was made in order to meet the increased demand for the bills by banks, given the high liquidity in the banking system as a result of the substantial inflow of hot money.
The Authority also said that the aggregate balance in total was projected to decline by about HK$8 billion ($1.03 billion) yesterday and by about HK$16.7 billion ($2.15 billion) by the end of this month.
However, a new research report from Citibank released Monday points out that the hot money may still be far from being absorbed by the banking system, and most of it has already made its way into the Hong Kong stock market.
H-shares rose more than 60 percent since early March and the Hang Seng index hit its highest point at 19,000 in the middle of last month during three-month period from March. Even with the help of the newly issued bills, the Hang Seng index only fell by 1.07 percent yesterday, four days after HKMA’s announcement.
Analysts are concerned that the Hang Seng could go above 20,000 point if the hot money cannot be curbed. Last year the speculative funds reached $500 billion.
The report says in the past six weeks, the average weekly inflow of funds into Hong Kong has reached the highest peak levels since 2007, with a peak of the aggregate balance in total reaching HK$257 billion ($33.15 billion) on May 19. Further evidence of the liquidity boom can be seen in the Hong Kong Inter-bank Offered Rate (HIBOR), which now stands at 0.05%, the lowest level since November 2004.
Just last week $1.5 billion from Asian sources came into Hong Kong, the report said.
Hot money has made Hong Kong facing financial challenges, according to Joseph Yam, chief executive of HKMA, who warned in May that the city’s asset prices may be facing a bubble.