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.

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