Hong Kong’s monetary base dipped $2.1b

Higher risk-free rate triggered fund outflows.

According to CCB International, fund flows out of Hong Kong amid a slightly higher risk-free rate. 

Hong Kong’s monetary base declined slightly, by HK$2.1b over the past week to reach HK$1,235b. Hong Kong’s 10-year treasury yield inched up to 2.86% by the end of last week. The Hong Kong 10-year treasury yield is up 120bp since June. In contrast, the US 10-year treasury yield has been up 90bp.

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Net fund outflows from the Hong Kong market. EPFR’s weekly report showed fund outflows from China’s equity market continued, moving from a net outflow of US$300m last week to a US$280m net outflow this week.

Fund outflows to Hong Kong rose to US$56m this week (ended 21August) from a net outflow of US$28m the week before.

Meanwhile, funds flowed out of the US and Japan equity markets into the EU market.

Turbulence in emerging equity markets and currencies.A climbing risk-free rate, weakening economic growth and expectations of a slowdown in QE in the US have triggered large fund outflows from emerging markets.

India and Indonesia are exposed to the gravest risk in Southeast Asia due to their large current account deficits and heavy external debt.

Although Hong Kong equity market fundamentals are highly dependent on growth in China, turbulence in emerging markets is likely to push up risk-free rates and risk premiums, which will have the effect of lowering valuation levels.