At the moment it does not look like that investors are pulling their capital out of the city in droves.
“The Hong Kong dollar has been trading on the strong side of the spectrum since April – at a rate of 7.75 Hong Kong dollars per US dollar. This means that there is a constant inflow into the city, “ — Vincent Tsui, Asia analyst at the international analysis house Gavekal Dragonomics in Hong Kong, the Handelsblatt.
The Hong Kong dollar is pegged to the rate of the American dollar and can only range between 7.75 and 7.85 per US dollar.
When it became known at the end of May that the government in Beijing wanted to extend its powers in the Chinese Special Administrative Region significantly with a security law for Hong Kong, the Hong Kong stock exchange had plummeted and foreign companies had expressed concern according to FX brokers like igcom,
The New Security Law in HongKong
The new security law marks a turning point in the financial metropolis. In contrast to mainland China, Hong Kong has had a functioning and independent legal system to date, from which investors have also benefited. However, under the pretext of preserving national security, the new security law creates considerable possibilities for Beijing to intervene in Hong Kong. Just one week after the controversial Security Act came into force, the National Security Authority in the financial metropolis was opened.
The security bureau should oversee that the new law is being implemented by the Hong Kong government. If there were a significant outflow of capital, it would largely go to the Asian metropolis. Singapore is the obvious alternative for wealthy bank customers and investors who distrust the Hong Kong financial cente. All business related to mainland China would remain in Hong Kong.
This is the bulk of Hong Kong’s financial transactions.
“No either-or situation”
Previously, a surge in foreign currency balances in Singapore had sparked speculation that it was linked to Hong Kong’s political turmoil. Already last year, when street protests paralyzed Hong Kong, Singapore’s leadership rejected the impression that the city-state could emerge as a beneficiary of the crisis. “In Singapore, we thrive best when the region is stable and other countries we do business with are doing well,” said Prime Minister Lee Hsien Loong, referring to the situation in Hong Kong. Observers see several reasons why the Hong Kong financial market has so far been unaffected by the significant changes in the metropolis.
Predicting an end to Hong Kong’s hedge fund industry is premature. “There are currently some IPOs in the pipeline, so the demand for Hong Kong dollars is likely to increase,” says Merics expert Zenglein. Chinese institutional investors are not bothered by the National Security Act, said Zenglein.
The strong Hong Kong dollar and capital inflow to the financial metropolis could be due to the interest rate differential and the positioning of foreign investors for the upcoming major IPOs, Tsui said.