Hong Kong’s weak dollar victim of China stocks

Bloomberg

The rally in Chinese stocks has been bad news for the Hong Kong dollar.
Equity investors are selling the currency for the Chinese yuan and buying mainland shares through the stock trading connects, according to Ronald Man, a strategist at Bank of America Merrill Lynch. That’s keeping the Hong Kong dollar lower in the spot market, he said. The currency has been at the weak end of its trading band for much of this month.
Net northbound fund flows climbed to around $19.4 billion this year, with sentiment helped by Beijing’s looser monetary policy and an easing of trade tensions with the US. The market could be further supported by foreign inflows, as MSCI Inc. expands the weighting of mainland-listed shares in benchmark indexes tracked by global investors.
The Hong Kong Monetary Authority spent nearly $1 billion defending the exchange-rate peg this month, as the Hong Kong dollar’s wide interest-rate discount to the greenback makes shorting the city’s currency lucrative.
“Positioning and risks suggest the depreciation in the Hong Kong dollar is more supported by equity investors via the stock connect than before,” Man said, adding the currency will hover near HK$7.85 per greenback in the “foreseeable future.”