HKMA's Bold Move: HK$46.5 Billion Purchase Fuels HKD SurgeA spokesman for the HKMA announced that the Hong Kong dollar activated the linked exchange rate mechanism at HK$7.75 to US$1 during New York trading on Friday, 2 May 2025. The HKMA purchased US dollars and sold HK dollars, amounting to HK$46.539 billion. By Wednesday, 7 May 2025, the total balance of the banking system will rise to HK$91.309 billion.
The spokesperson noted that the recent strength of the Hong Kong dollar stems from increased demand related to stock investments, which bolsters the exchange rate. Additionally, the appreciation of several regional currencies against the US dollar has contributed to the Hong Kong dollar's strength. The last activation of the strong side redemption guarantee occurred on 28 October 2020.
Reuters reported that European equity funds attracted their largest weekly inflow in over a year, totalling $14.64 billion for the week ending 30 April. In contrast, U.S. funds experienced outflows for the third consecutive week due to ongoing uncertainty regarding tariffs and their impact on global economic growth. Investments in Asian funds reached $6.68 billion.(source Reuters).
Although comparing the report time, they are reporting different fund flow; the inflow of money into Hong Kong is currently modest, at HK$46.539 billion (approximately $5.99 billion), it is comparable to the figures reported by Reuters for Asian funds.
In the Hong Kong property market, Sun Hung Kai Properties’ Sierra Sea project has sold all 318 flats in its first sales round last week and the second batch of 288 flats. In total, 606 flats were purchased over two weekends. Property agents report that 20 to 40 per cent of prospective buyers are from mainland China. Prices for these units range from HK$3.27 million to HK$8.99 million (US$422,000 to US$1.16 million), with a price per square foot between HK$9,992 and HK$13,533.(source: SCMP)
These cases indicate that money is flowing into Hong Kong, with the HKD strengthening to the strong side of 7.75. This influx will increase bank balances, suggesting that the Hang Seng Index (HSI) is unlikely to weaken in the coming weeks, despite the negative impact of US tariffs on business sentiment.
Technically, the HSI has potential for further gains, with targets set between 26,700 and 27,600. It remains within an upward channel, and cycle analysis indicates that this upward trend could continue until June.
Why is money flowing into Hong Kong? Is it due to the attractive price-to-earnings ratio, Chinese investors relocating funds from the US, or rumours about the government? These factors need to be validated in the future.
