Hong Kong’s Asset Advantages Stand Out (AI Translation)

香港资产相对优势凸显

In early May, the Hong Kong dollar (HKD) touched the strong-side Convertibility Undertaking against the U.S. dollar (USD), prompting the Hong Kong Monetary Authority (HKMA) to inject HK$129.4 billion into the market. This action boosted the aggregate balance of the Hong Kong banking system from about HK$45 billion to around HK$174 billion—nearly a threefold increase. Consequently, the Hong Kong Interbank Offered Rate (HIBOR) dropped sharply, with overnight HIBOR falling from 4.5% at April’s end to nearly zero. Around the same period, CATL completed the largest global IPO since 2023 in Hong Kong, raising over HK$35 billion, underscoring improved liquidity and affirming Hong Kong’s continued global appeal—even without significant U.S. investor participation.[para. 1]

Despite rising tariffs this year, the USD has weakened, signaling the start of global “de-dollarization.” Countries now seek to correct excessive USD allocations in their foreign reserves, with asset repatriation expected to benefit capital markets in Asia, the Middle East, and the EU. Hong Kong, as Asia’s most liquid offshore financial market, is positioned to benefit significantly from these inflows, presenting another historic growth opportunity.[para. 2]

Trade tensions, such as unpredictable U.S.-China tariff policies, have reinforced skepticism about U.S. policy stability and credibility, further weakening the USD. Rising tariffs increase transaction costs and contribute to the reversal of globalization, reducing both the necessity and incentive to hold USD as a reserve. As global confidence in the dollar wanes and de-dollarization accelerates, the valuation premium attached to the dollar’s reserve status erodes, prompting further rebalancing by institutions that previously held excessive USD assets. This could intensify downward pressure and add volatility to the USD.[para. 3][para. 4]

By contrast, the renminbi (RMB) stands to benefit. Chinese exporters have historically been heavily overweight in USD assets—exceeding $100 billion in the past decade alone. As the RMB strengthens, these institutions may be forced to rebalance their portfolios, fueling further RMB appreciation. The RMB’s competitiveness is underpinned by strong fundamentals—China’s efficient manufacturing sector, robust trade surpluses, and a favorable real effective exchange rate.[para. 4]

A depreciation of the HKD against the RMB is expected to boost Hong Kong’s competitiveness relative to mainland China and lead to looser financial conditions locally, setting the stage for renewed inflation across consumer prices and asset values. Hong Kong’s linked exchange rate system pegs the HKD tightly to the USD at a rate of HK$7.8 to US$1, leaving little room for independent monetary policy. As a result, local prices and asset values serve as the primary “shock absorbers” for economic adjustment, often resulting in wider swings in inflation and asset cycles. The recent HKMA intervention is a textbook illustration: when the HKD touched the strong-side band, a massive liquidity injection followed, pulling HIBOR down near zero.[para. 5][para. 6]

Regionally, de-dollarization provides a powerful tailwind for Hong Kong’s financial sector. Mainland China, Japan, and OPEC are among those with substantial trade surpluses and hence large USD holdings—China alone with a $7.1 trillion surplus, 38% of its 2024 GDP. As these surpluses are reallocated due to a weakening USD, Asian capital markets, particularly Hong Kong, stand to gain. For example, Japanese and Taiwanese financial institutions are overweight in foreign currency assets relative to liabilities or revenue, highlighting the scope for systemic portfolio realignment. Though capital rebalancing can increase market volatility, Hong Kong’s stable fundamentals and continued inflows should ensure its relative resilience.[para. 7][para. 8]

Finally, despite periodic shocks and volatility tied to global events, Hong Kong’s competitiveness and looser financial conditions—supported by robust year-on-year GDP growth of 3.1% in Q1 2024—position it to benefit from capital returning amid de-dollarization, sustaining its capital markets’ liquidity and growth.[para. 9]