Hong Kong: Fears of crisis and currency regime-change overdone

A persistent move to the weak side of the HKD-USD trading band has led to renewed chatter of a change in Hong Kong’s currency regime (i.e. a de-peg from the US dollar). In addition, talks of a looming financial crisis have been aroused by a recent broker report putting Hong Kong at the top of the list on financial vulnerabilities.

We think both of these fears are overdone, with some of the metrics behind these gloomy views significantly distorted by Hong Kong’s financial centre status. While risks in the property market need to be managed, we believe the HKD/USD peg is here to stay, despite volatility caused by short-term market gyrations.