HK finance chief Tsang warns of ‘crisis’ in ‘volatile markets’
Hong Kong Financial Secretary John Tsang Chun-wah has warned of a “crisis” in the volatile financial market following the steepest loss recorded on Wall Street in four years.
Writing in his regular Sunday blog, he cautioned investors of hidden dangers that have driven the financial market into a state of very high volatility, including rising tension on the Korean Peninsula, saying these could heighten nervousness when market trading resumes this week.
All these factors might bring about a fresh financial crisis, he said, adding that both the Hong Kong government and investors must tread carefully.
Tsang said the People’s Bank of China’s decision to lower the renminbi’s central parity rate by 1.9 percent on Aug. 11 should be considered as good news for Hong Kong, as it would take the mainland currency one step closer to a market-driven mechanism.
A fixed rate might look stable, he said, but noted that a mechanism that provides flexibility can better address the country’s economic changes and balance of payments. Such a market-driven system offers stability in the long run and is more suitable to the country.
“Marketisation initiatives unveiled by the central authorities will make the system better adapt to market changes, and match that of the international market. This undoubtedly is a very favourable message for Hong Kong,” he wrote.
He said it would only be a matter of time before the International Monetary Foundation adds the renminbi to the basket of special drawing rights (SDR) with the country’s reform blueprint in view.
Marketization of the renminbi rate will add to fluctuations in the global market, but Tsang thinks that the currency’s recent depreciation had more to do with expectations of an impending U.S. interest-rate hike.
The financial chief also warned that various emerging markets are facing uncertainties in their economic outlook at a time when capital could move out of these markets soon. A fluctuation of currencies of these countries could affect global economy and even asset pricing in Hong Kong.