Various reports are signaling increasing demand to sell the Hong Kong dollar due to concerns about the peg’s sustainability as well as desires for emigration, offset by a surge mainland investor demand.
Money exchange shops in Hong Kong are reportedly experiencing a shortage in U.S. dollars as residents rushed to convert their Hong Kong dollars due to fears that the peg between the two currencies could break.
One owner of a small shop said he unwillingly turned away 600 customers after demand increased 10-fold this week with many exchanging sums as large as millions of Hong Kong dollars.
«There will be no US dollars for exchange until next Tuesday or Wednesday,» an «SCMP» report said citing the store owner who said that that future U.S. dollars were reserved for those who had already placed orders. «The US dollar is out of stock everywhere. We’ve offered every last bit of our supplies to our customers.»
Emigration Accelerates
At the same time, Hong Kongers are increasingly opting for emigration due to worries about the local environment after the implementation of the national security law. Taiwan and the U.K have already signaled plans to support the import of Hong Kong residents fleeing from Beijing’s expanded rule which will likely trigger more selling pressure as families convert to foreign currencies for personal expenditures and investments.
According to a «Bloomberg» report, inquiries for emigration have recently surged following the proposed legislation. Property and migration consultancy Global Home, for example, claimed to receive an inquiry every two to three minutes – a 20-fold increase from normal levels – with interest mainly in Taiwan and Europe. Another firm, Centreline Immigration Consultants, said it was receiving up to 100 inquires a day from Hong Kongers interested in moving to countries like Australia, the U.K. and Canada. Taiwan, Malaysia and Portugal.
«The national security law is definitely a push factor,» said Centaline Immigration Consultants managing director David Hui.
Mainland Buying Frenzy
Partially offsetting these HKD headwinds has been the surge in mainland investor demand for Hong Kong shares. According to another «Bloomberg» report last week, eligible investors acquired $35.3 billion in Hong Kong equities year-to-date – the most since 2017 – and buying accelerated after Beijing’s announced its plant to impose a security law in the city.
«It's unclear whether China's state-directed funds have been involved in recent days' buying or whether they earmarked any cash to stabilize the market,» the report said. «Such funds have regularly intervened to manage swings in China's US$7.3 trillion equity market, especially around politically sensitive dates».
Government Reassurances
Despite reported trends of capital outflow, Hong Kong authorities continue to claim that the concerns are manageable for the time being and inferring that holding the local currency and opting for «fight» rather the «flight» is the sound decision.
Hong Kong financial secretary Paul Chan said the government remained «highly cautious» about the security of financial markets, he added that there was little indicator of capital outflows based on, citing banking and asset management business representatives.
The Hong Kong Monetary Authority also attempted to boost confidence over the weekend by adding that that the free flow of capital and free convertibility of the Hong Kong dollar will continue to be safeguarded by the «Basic Law» – the city’s own constitution. It also said on social media that Hong Kong’s foreign reserves could sufficiently defend the peg, totaling over $440 billion and twice the size of the monetary base.
