Hong Kong’s currency has strengthened to its strongest level in four years against the US dollar, driven by the demand from mainland China’s stock buyers who are dipping into one of the world’s cheapest major capital markets through the Stock Connect scheme.
The local dollar changed hands at 7.7595 for every US$1 on Thursday morning, retracing from a high of 7.7560 per US dollar on Wednesday.
This was close to the top end of the local dollar’s trading range against the US currency that has been in place since 2005 to augment the 1983 currency peg, which requires intervention by the Hong Kong Monetary Authority (HKMA) to bring the exchange rate back to within the band of 7.7500 to 7.8500 per US dollar.
The jump in the local currency, in spite of Hong Kong being hit with US tariffs along with mainland China, was due to the inflow of overseas capital in search of bargains in the city’s stock market, which is trading at an average of 10 times earnings, bankers said. That included the so-called Southbound capital from the mainland, where investors would exchange the yuan for the Hong Kong dollar to buy Hong Kong-listed Chinese companies like Alibaba Group Holding and Tencent Holdings, they said.
“Continuous Southbound inflow from mainlanders in Hong Kong is a major contributor to the local dollar’s strength,” said Tommy Ong, the managing director of T.O. & Associates Consultancy, who expects the currency to hover between 7.7570 to 7.7800 per US dollar before June. “The repatriation of Hong Kong dollars after selling US stocks from Hong Kong and Chinese overseas accounts may also add to the Hong Kong dollar’s strength,” he said.
