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Hong Kong money rates drop to multi-year lows on capital inflows

01/22/2021 | 12:46am EDT

SHANGHAI, Jan 22 (Reuters) - Heavy foreign flows into Hong Kong's stock market drove borrowing costs to multi-year lows this week, prompting investors to suspect there won't be any need for the customary official liquidity support ahead of the upcoming Lunar New Year holiday.

Hong Kong's interbank offered rate, a gauge that measures cash conditions in the financial hub, eased to around 0.17% in the two-month tenor on Friday, its weakest since Feb 2011. The three-month HIBOR slid to 0.24018%, its lowest since March 2011. Short term money rates also edged lower.

The massive amounts of Chinese and foreign cash pouring into Hong Kong have pushed the benchmark Hang Seng Index above 30,000 point mark for the first time since May 2019 this week, and it has gained more than 8% this year.

Analysts said the sharp bounce in Hong Kong stocks came after panic selling in some Chinese stocks prompted by a U.S. investment ban, as Asian and European investors hunted for bargains as giant American funds dumped shares.

Mainland investment euphoria has also spilt across the border, with a record amount of Chinese money gushing into Hong Kong-listed Chinese tech stocks via the Stock Connect trading scheme.

Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong said Hong Kong's monetary authority was unlikely to inject additional funds, as it usually does, before this year's Lunar New Year holiday - a time when cash demand usually rises.

"Liquidity is already too much," Cheung said. "HKMA seems to be more inclined to keep liquidity stable, and given the broad economy is still recovering."

Cheung expects the city's abundant liquidity conditions to persist for a while, with no major reason for outflows, such as high-profile IPOs, on the horizon.

The Hong Kong dollar, which has stayed near the stronger end of its 7.75-7.85 per U.S. dollar band this week, last traded at 7.7520.

(Reporting by Winni Zhou and Andrew Galbraith Editing by Vidya Ranganathan)

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
CANADIAN DOLLAR / HONGKONG-DOLLAR (CAD/HKD) -0.01% 6.27864 Delayed Quote.3.16%
EURO / HONGKONG-DOLLAR (EUR/HKD) -0.04% 9.02065 Delayed Quote.-4.47%
HANG SENG 0.02% 26118.63 Real-time Quote.-4.09%
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