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Tuesday, October 03, 2017, 16:15
Outside the box
By Peter Liang
Tuesday, October 03, 2017, 16:15 By Peter Liang

The Chinese mainland’s new monetary policy to systematically lower banks’ reserve requirements from 2018 is designed to increasing the funding to small- to medium-sized enterprises.

But the move has been taken by some Hong Kong stock analysts and investors as an indication of the end of deleveraging, which was seen to have helped curtail the hectic expansion of some major enterprises, especially those in the property sector.

Such a perception helped reignite investors’ interest in the Hong Kong listed H shares of mainland enterprises, particularly those in the financial sector. Led by the strong performance of various mainland stocks, the local market opened strongly on Tuesday after the holiday break. The benchmark index surged 1.6 percent in morning trading, recovering most of the lost grounds in past weeks.

The widely perceived monetary loosening policy of the mainland’s central bank was seen by investors to have the potential of encouraging a greater flow of mainland capital into Hong Kong at a time when its currency is appreciating in tandem with the US dollar.

Indeed, the US dollar has strengthened against most other world major currencies since the Federal Reserve reaffirmed its intention to wind down its balance sheet. Many analysts predicted that the widely expected increase in US interest rates in the Fed’s next policy meeting in December will give the dollar a further boost.

Under the linked exchange rate system, Hong Kong has little leeway but to eventually fall in line with the US by raising local lending rates. This could help further push up the value of the Hong Kong dollar against other regional currencies, including the renminbi.

Some analysts have lamented that capital flow from the mainland has greatly complicated the matrix used to predict stock price movements in the Hong Kong market. Buying and selling stocks is becoming more and more a reflective action to changes in mainland’s monetary policies.

Mainland watching is now the name of the game. 

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