Hong Kong SAR
This Special Report assesses evidence of RMB’s involvement in global carry trades, examines its structural characteristics, and identifies key indicators of a potential unwind.
In this chartbook, we look at the balance of payments across DM and EM countries. The US does not fare well, but neither do a few other countries.
This week, we look at the sustainability of the HKD peg as the next whale to move markets, given what is happening to tariffs. After careful analysis, our bias is that it is here to stay. With the DXY dipping below 100, we are likely to see a rebound, which is actually bad news for the Hong Kong region of China, since it will tighten financial conditions. We have no new short-term trades, but if the peg broke, you want to be short HKD/JPY.
The HK dollar is under an assault from rising US interest rates and a weak economy. To defend the exchange rate peg, the HKMA will continue to tighten liquidity, which will boost HK interest rates above those in the US across the entire yield curve. That will cause major damage to this economy and HK-domiciled companies' stocks. Downgrade the MSCI HK equity index within a global portfolio from neutral to underweight.
