HKMA urges vigilance on rates

We don’t have a liquidity crunch here. Hong Kong is rich in capital supply.” Kenny Tang, chairman of the Hong Kong Institute of Financial Analysts and Professional Commentators

The Hong Kong Monetary Authority on Thursday advised local businesses and individuals to be vigilant about the increasing likelihood of an interest rate hike in the United States before the end of the year.

A HKMA spokesperson said that although the US Federal Reserve decided to leave short-term interest rates unchanged on Wednesday, there was a fairly high chance of a rate increase in December.

Local investors are expecting the HKMA to take a lead and raise local interest rates once the US Federal Reserve has decided to raise its own interest rates.

But they believe that thanks to Hong Kong’s openness to international capital and funds from the Chinese mainland, the anticipated rate rise will not drain capital from the Hong Kong stock market.

“We don’t have a liquidity crunch here. Hong Kong is rich in capital supply,” said Kenny Tang, chairman of the Hong Kong Institute of Financial Analysts and Professional Commentators.

“Our market is likely to rise to a new level for the remainder of the year,” he added.

Local financial analysts said a US interest rate increase would more likely help global funds to refocus on Hong Kong, and through Hong Kong, they will gain opportunities to the mainland economy, so long as that economy remained steady.

The monetary authority’s spokesman said that judging from what he called “considerable uncertainties” about the pace of US monetary policy, it was advisable for local businesses and individuals to be prepared for coping with the potential changes in capital flows and the market volatility that they may trigger.

Norman Villamin, chief investment officer at Union Bancaire Privee, said he expected the Fed to raise US interest rates by 25 basis points.

But more importantly, a roadmap would be laid out by then about what he called the normalization of interest rates, and a gradual withdrawal of financial stimulus to the US economy.

Villamin said he expected a rise in inflation and relative tight liquidity in the US at the beginning of next year, which won’t be good news for the emerging markets.

In the meantime, the recovery of the global and regional economies and the normalization of US interest rates would be good for stock marketsin both the mainland and Hong Kong, he added.

China CITIC Bank International Ltd chief economist Liao Qun said a US interest rate hike in December — even if the Hong Kong stock market was influenced by a local interest hike — wouldn’t have a direct impact on A shares because the mainland equity market tended to follow its own cycle.

Fidelity International Global Economist Anna Stupnytska stressed that a US interest rate hike was now almost a question of credibility for the Fed, with many investors frustrated by its confusing communications to the market of late and with them not see mingto care that much about its potential implications.

The benchmark Hang Seng Index rose 89.9 points or 0.38 percent to 23,759.8 on Thursday, while the Hang Seng China Enterprises Index gained 44 points or 0.5 percent to reach 9,893.