VZCZCXRO3520
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #2034 3101137
ZNR UUUUU ZZH
R 051137Z NOV 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 6180
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS HONG KONG 002034
SIPDIS
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA
E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: Demand for HK$ Increases, Hang Seng Moves Up Steadily
1. Summary: The Hong Kong stock market responded positively to
Barack Obama's victory in the U.S. Presidential election, though
commentators raised concerns that U.S. trade policy would become
more protectionist. The HKMA has intervened several times over the
past three days as demand for HK$ increases. HIBOR has also
loosened, although analysts disagree whether the two are linked.
The Hang Seng Index gained 3.17 percent or 455.82 points today,
closing at 14,840.16 with a daily trade of HKD 63.4 billion. End
Summary.
2. Following the extreme volatility of the last week of October,
The Hang Seng Index has stabilized in first three trading days of
November. The Index has gained 6.2 percent since closing last
Friday at 13968.67. Still, no analyst dared to predict the end of
the roller-coaster ride. The 40 percent rebound from the intraday
low recorded Monday last week (October 27), when the Hang Seng
touched 10676, was described by cautious investors as "too strong
and too quick".
HKMA Intervenes - HIBOR Falls
--------------- -----------
3. The Hong Kong Monetary Authority intervened for the third time
in four days as the Hong Kong dollar approached the strong side (HKD
7.7500/USD) of the pegged rate. After selling US$ 363 million (HKD
2.813 billion) last Friday, HKMA added injections of US$ 110 million
(HKD 853 million) on Monday and US$ 105 million (HKD 814 million) on
Tuesday to check the increasing demand for Hong Kong dollars. The
HKMA noted that the calls for HK$ were small and diffuse, suggesting
several investors were seeking relatively small amounts of the
currency. Officials speculated that Hong Kong investors were
bringing money back to boost local liquidity. On Thursday the
interbank market in Hong Kong will have an aggregate balance of over
HKD 30 billion, more than double the recent average.
4. HIBOR quoted by Hang Seng Bank at 4:43 pm today dropped to 0.50
percent for overnight and one week (0.75 percent on Monday), 1.4
percent for 1-M (2.15 percent on Monday), 2.55 percent for 3-M (3.2
percent on Monday), and 2.85 percent for 6-M (3.4 percent on Monday)
borrowings.
5. Hang Seng Bank General Manager Andrew Fung told Hong Kong Cable
TV this afternoon that HIBOR would fall gradually as the Hong Kong
Monetary Authority continued to inject liquidity. Fung admitted,
however, that the fall in HIBOR would not immediately affect banks'
lending rate to retail customers. Bank of East Asia Chairman David
Li told Hong Kong Economic Journal (Nov. 4) that the fall in HIBOR
could reflect the return of confidence among Hong Kong bankers.
However, Li did not see any room for cutting interest rates on new
mortgage loans, as property prices are expected to fall in coming
months. HKMA officials dismissed the effect of their recent
interventions on HIBOR, noting that the sales of US$ were far too
small to significantly affect interest rates in Hong Kong. They
attributed falling interest rates to increased confidence in the
local banking system, in part due to improvements abroad.