Confidence in Chinese stocks is weakening as the country continues its lockdown policy to fight the Covid pandemic. As a result, some capital flights occurred in the Hong Kong market this week.
After the United States’ central bank raised interest rates, the exchange rate of the Hong Kong dollar against the U.S. dollar continued to fall.
This week, the Hong Kong dollar dropped to its weakest level in more than three years. The Hong Kong government had to intervene heavily in the market to support its currency.
According to the South China Morning Post, the Hong Kong Monetary Authority bought 403 million dollars on Saturday morning after the local currency briefly fell to HK$7.8500 per U.S. dollar.
It was the fourth intervention in three days by the authority, bringing its total support for the local currency to 1.49 billion dollars.
These moves were aimed to help stabilize the exchange rate and return the Hong Kong dollar to its trading band.
The band, in place since 2005, allows the Hong Kong dollar to fluctuate between HK$7.7500 and HK$7.8500 against the US dollar.
According to Liberty Times Net, this is the first time the government has entered the market to save the Hong Kong dollar since 2019.
Experts believe that China’s continuous lockdown links to the weakened attractiveness of Hong Kong stocks and affects the Hong Kong dollar.
Li Zhaobo is a researcher at the Asia-Pacific Business Institute of the Chinese University of Hong Kong Business School. He explained to Radio Free Asia that it is normal for Hong Kong’s monetary agency to buy its dollars under the linked exchange rate.
However, the move of the Hong Kong dollar has a special relationship with the attractiveness of Hong Kong stocks. And the weakness of the Hong Kong currency may indicate that the attractiveness of the Hong Kong stock exchange has weakened.
Li Zhaobo said that if Hong Kong stocks fall, the demand for Hong Kong dollars will weaken. China’s lockdown is hitting its economy. There are many Chinese stocks in the Hong Kong market, making Hong Kong stocks less attractive.