Hong Kong's stocks and its currency took an outsized tumble last week. Despite the sharp rebound on Friday, H- share valuation remain at historical lows. Does this signal that the crisis in 1997 will be repeated ? Will the HK dollar snap? CCTV reporter talked to economists in HK and files this.
Last week, decline in both Hong Kong's currency and stocks is stoking fears that global investors could be spooked into withdrawing as much as hundreds of billions of Hong Kong dollars from the city, threatening Hong Kong's long-held policy of pegging its currency to the U.S. Dollar.
But HK Monetary Authority reiterated it has no intention of ending the currency peg.
"The peg to the dollar system has been a mature mechanism for a long time. Even if it hits the weak side, it's still normal.
"Our government is controlling the risks and ensuring the market is smoothly operated," said Chan Ka Keung, Secretary of Financial Services and Treasury, HKSAR.
Hong Kong Monetary Authority has pegged its rate of exchange to the U.S. dollar ranging from HK$7.75 to HK$7.85 to one U.S. dollar, for the past 32 years.Some suggest that they should change to peg it to the Renminbi, while others say it's not the time yet.
Qu Hongbin, Chief China Economist, HSBC said:"HK dollar peg has been working very well for HK,HK as a small economy, the peg system is probably the best."
Under Hong Kong's "currency board" system, the HKMA buys the local dollar with U.S. dollars when the currency hits the weak side of the trading band, using some of its US$358.8 billion of foreign-exchange reserves.
Given the Hong Kong Monetary Authority's determination to keep the currency peg, analysts say local interest rates have to go up, and home prices would have to fall.
And that happened in 1997, during the Asian financial crisis, when the HKMA spent billions to defend the peg while local banks raised interest rates sharply. So, will the 1997 financial crisis happen again?
"Chinese economy is still growing at 6.5-7%, HK economy is still growing at 2%-2.5%. I don't see any signs there's any economic crisis," said Qu Hongbin.
Andrew Xia, Research Director of Noah Holdings (HK) Limited said:"This time the crisis is a small. Maybe much bigger than what we have seen in 2011, 2010, but I don't believe it'll be as big as 1997."
Most analysts don't see signs of another financial crisis, however they expect property prices to drop significantly after a multiyear rise that has made the city one of the world's most expensive ones to live in.
