4.2.92
6
JWL0048
MR ELSTON
From J W Lund
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ID Sections 6 9 BSD Group 18
HONG KONG FINANCIAL MARKETS: JANUARY 1992
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Summary
1 HK$ appreciated against US$, as HIBOR rose above a declining $LIBOR. Stock
market buoyant. Charts attached.
Exogenous Factors
2 (a) Tokyo markets were closed in early January, trading moved to HK.
(b) US Rates: 0.5% fall in US$-LIBOR in second week of January.
(c) China factors: Resolution of Sino-US trade dispute (16 January), Deng
Xiaoping's visit to Shenzhen and 'pro-Capitalist' speech, Premier Li Peng's
overseas visits and rumours of ex-Premier Zhao Ziyang's rehabilitation.
(d) Chinese New Year in first week of February.
Effects on HK markets
3 (a) HK$ appreciated sharply (overshot?) on 6 January followed by gradual
adjustment to new stable rate of about HK$7.76=US$1. The deviation from the Link
rate of HK$7.8-US$1 thus widened during January from 2 to 4 HK cents.
(b) HIBOR rose 0.5% as US rates fell, pushing HIBOR above $LIBOR, although by ́10
January HIBOR had fallen back just below $LIBOR. In the latter half of the
Month, HIBOR rose again above $LIBOR as China factors (see para 2.c) and economic
news (see Para 4) improved confidence in Hong Kong. The Exchange Fund injected
HK$100 mn of liquidity into the market to relieve temporary tightness ahead of
Chinese New Year. The Exchange Fund emphasised it was not a signal for the Hong
Kong Association of Banks to cut the prime rate (widely expected by analysts
following the cut in US rates).
(c) Hang Seng index rose 305 points (7.1%) in January to 4,602 by the end of the
Month. The biggest rise was between 13 and 23 January (300 points to peak of
4626), driven mainly by improved confidence due to China factors (see para 2.c),
diversion of capital from the property market (which has been calmed by
Government measures), and portfolio adjustments ahead of the Chinese New Year.
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