Natixis: Hong Kong’s Economy Strong But Currency is Weak

Hong Kong’s economy in the second quarter grew 3.8% year-on-year, beating market expectations again and prompting the local government to revise its GDP growth projections upward to between 3 percent and 4 percent in 2017.

While the economy is strong, the special administrative region’s currency is weak as it touched its historical low on Aug 7 since January 2016 pushed by large interest rate differential against the USD (a very weak HIBOR with respect to LIBOR), according to Natixis Research. This automatically triggered the HKMA sale of Exchange Fund Bills, following the rules supporting Hong Kong’s currency board.

“The announcement managed to strengthen the currency temporarily but already on Aug 9, the HKD reverted back to its depreciation trend as the interest rate differential has not really narrowed,” says Natixis Research in a report.

Natixis also noted in its report that the property market seems to have reached a “wait and see” attitude after very fast price increases. “After renewed tightening measures, the number of transactions fell by over 2000 units in July but the seemingly cooling market failed to bring down purchase or rental prices.”

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