On April 20, the Hong Kong Monetary Authority bought $1.2bn for HK$7.75 a dollar in its latest round of purchases this month that bring the total to $5.82bn.
Since Chinese authorities have made it easier for mainland firms to make purchases on the city’s stock exchange, demand for the Hong Kong dollar has been rapidly rising. As such, Chinese magnates are beginning to shift their investments from overseas into Hong Kong.
Chinese magnates are beginning to shift their investments from overseas into Hong Kong
According to Bloomberg, Hong Kong shares listed on the Hang Seng China Enterprise Index have risen by 16 percent in April, exhibiting the most growth among equity benchmarks, bar Dubai.
Experts believe that the influx of wealth into the city could cause further tension given Hong Kong’s infamous level of economic inequality, which contributed to the widespread protests that took place last year. Property prices and living costs can be expected to experience an additional hike as a result of this new trend, thereby raising the possibility of another outbreak in social unrest.
Since 1983, Hong Kong’s local currency has been pegged to the US dollar as a means of providing economic stability and international credibility. Doing so has worked for decades, but given recent moves made by Chinese premier Li Keqiang to open up the Hong Kong Stock Exchange to the rest of China, the opposite could now be in effect.
Hong Kong’s devaluing currency is also contributing to its rising inflation rate, which grew to 4.6 percent in February, a sizeable difference in comparison with Mainland China’s 1.4 percent. It would seem that maintaining the dollar peg is no longer required, while removing it in favour of the yuan could make China’s currency more accessible and transparent on the international market, therefore aiding its objective to internationalise the yuan.