The Hong Kong Monetary Authority (HKMA) has been interfering with the foreign exchange rate several times in the past two weeks by injecting HKD into the market to stem the rise of HKD against USD. The exchange rate is now around HKD 7.75 to USD 1, at the left hand edge of allowable range between 7.75 to 7.85.
What makes HKD so strong recently? even stronger than the USD? Below are some plausible reasons:
1. HKD is essentially USD. When people are going for safety in USD, they can find safety in HKD as well. This will prompt people to buy USD and/or HKD.
2. The Hong Kong government now insures every bank account in Hong Kong, with no upper limit, for the next few years. In the US, only up to USD 100,000 was insured. Parking your money in HK is definitely safer than parking money in the US, particularly for big money amount.
3. HK is indeed safer in the sense that there has not been a single bank going under in this financial crisis. If you look at the US, a few of the smaller US banks have gone under already.
4. People are waiting on the sideline to get back into the Hong Kong equity market? In general, people believe that China will recover faster than all developed countries in this financial crisis. So Hong Kong / China stocks should recover earlier and faster than US stocks.
Hopefully No. 4 is true. Then we can probably see a very good bounce back next year! Let me check if there is any correlation between HKD exchange rate and Hong Kong stock market tomorrow! Stay tuned.
