Global stock losses to hit Asia
MAINLAND CHINA & HONG KONG
Investors keep piling into Hong Kong ahead of Ant Group Co Ltd’s mega listing, with demand for the local dollar prompting authorities to flood the banking system with unprecedented liquidity.
The Hong Kong Monetary Authority on Tuesday (27 October) sold a record HKD31.8b (USD4.1b) worth of local dollars to curb the currency’s strength. This will lift the interbank liquidity pool to almost HKD450b on Thursday, surpassing the previous high in 2015.
The de facto central bank has stepped in 83 times this year to prevent the local currency from strengthening past its permitted trading range with the US dollar. The pace of interventions has picked up recently, and October’s size will top HKD183b, the largest on record.
An elevated liquidity pool means interbank rates will likely remain steady despite massive demand for cash during large stock sales. Suppressed borrowing costs will also benefit local businesses struggling in the wake of last year’s protests in the city and the impact of the coronavirus epidemic on the economy.
Ant’s initial public offering (IPO), month-end bank regulatory checks, and demand for the Hong Kong government’s inflation-linked retail bonds – or iBonds – have helped increase demand for the local currency, said an economist. “This situation will likely ease up once Ant’s IPO finishes in early November,” she said. “By then, some capital may leave Hong Kong, allowing the Hong Kong dollar to move away from its strong end to trade at around 7.75-7.76 per dollar.”
However, the aggregate balance could still have room to rise further in coming months, given the local dollar’s interest rate premium over the greenback and with further listings by Chinese firms in the pipeline, the economist added. – Bloomberg News.
The Shanghai Composite Index gained 0.46% to 3,269.25 on Wednesday while the Hang Seng Index fell 0.32% to 24,708.80.
REST OF ASIA
Asia stocks looked primed for losses after shares tumbled in the US and Europe, as rising coronavirus infections and tougher lockdowns added to worries about the economic hit from the pandemic.
Australia’s S&P/ASX 200 opened 1.64% lower at 5,958.10 Thursday (29 October), after inching 0.11% higher to 6,057.70 on Wednesday, and futures declined in Japan and Hong Kong. S&P 500 contracts ticked higher after the benchmark lost 3.5% for its biggest drop since June, while a gauge of US equity volatility surged. In China, nearly 1,000 firms are due to release third-quarter earnings on Thursday, with traders looking to see if the results confirm the nation’s accelerating recovery.
The MSCI global equities gauge is down almost 5% this week (ending 30 October) as virus cases surge, and after American lawmakers failed to agree on an economic aid package before the 3 November election. Germany and France are imposing stricter lockdowns, while Italy, Spain, and the UK all reported record case numbers on Wednesday.
“We’ve got the election hanging over our heads. Then obviously COVID accelerating to the degree that it has both here in the US as well as in Europe,” said a market watcher. “And then you’ve got the lack of stimulus, which in our estimation is still necessary to get us through this period until we get an ultimate medical solution.” – Bloomberg News.
South Korea’s Kospi Index tumbled 1.34% to 2,313.88 at the open on Thursday after adding 0.62% to 2,345.26 on Wednesday.
The Taiwan Stock Exchange Weighted Index fell 0.63% to 12,793.75.
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