TNAG-2466-FCO40-3590-Economic-situation-in-Hong-Kong-1992 — Page 109

JWL0056

MR ELSTON

From J W Lund

Copies to Mr Crockett

M Laxm Mr Store (Pretty superficial)

Pa

Mr T A Clark Mr Latter

Mr Page

Mr Smeeton

Mars 040

m

Mr Sutherland Mr D A Ware ̋

Mr Miles

J/Min

HONG KONG FINANCIAL MARKETS: FEBRUARY 1992

очер

Mr Milne

Mr A Bulley

Fa

3.3.92

ID Sections 6 9 BSD Group 18

Mr Ricketts (FCO) of

Mr Cox (FCO)

Mr Lane (FCO)

Mr MacIntyre (HMT)

Summary

1

HK$ remained strong at around 7.76 to the US$, as HIBOR

fluctuated above US$-LIBOR. Government bond yield fell slightly,

but stock market remained buoyant.

Explanatory Factors

2 (a) Chinese New Year (4-6 February) meant HK markets were closed.

(b) US rates: US$ Libor eased 0.2% between 6 February and 10

February, but gradually rebounded 0.3% by 20 February and

stabilised around 4.25%.

(c) China factors: In late february the US congress blocked

renewal of China's Most Favoured Nation clause, but HK markets were

unaffected, confident that President Bush will veto this decision.

This confidence was reinforced by Chinese leader Deng Xiaoping's

positive remarks about the role of Hong Kong.

(d) Annual reports season is between January and March. Better than expected results boosted share and warrant prices in HK and

China Gas, and in other firms.

Effects of HK markets

3(a) HK$ remained strong at HK$7.76=US$1, and even stronger than

this rate in the ten days after Chinese new year when trading

resumed in HK, and at the end of the month when buoyed up by

positive China factors (see para 2.c)

(b) HIBOR hovered 0.1-0.5% above US$-LIBOR. 3-month HIBOR started

the month at 4.4%, fell to 4.1% by 10 February, and rose to almost

4.6% by end-February. Despite market pressures (and perhaps due to government pressures), the Hong Kong Association of Banks decided not to lower the prime lending rate, which stayed constant at 8.5%

throughout February.