Euro on Sunday reveals: Something is wrong here! Hong Kong Dollars – A Quite Fragile System message
by Jrg Lang, Euro on Sunday
There has been a de facto bond here since 1983 with an exchange rate of around HK $ 7.80 for a US dollar. The official bond has been abandoned, but the central bank of the former crown colony is keeping the exchange rate in a tight band by all means. The biggest rash has been in the past ten years less than 1.5 percent. This so-called peg worked so long because many countries grant Hong Kong trade privileges to do business with mainland China. This system is likely to be challenged in the coming months.
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With the new Security law for Hong Kong through China’s People’s Congress, the mainland intervenes in the autonomy that was originally determined until 2047 under the motto “one country, two systems”. China can now deploy its own security forces in Hong Kong. This turns the city into a satellite. Anyone who believes that this will have no economic significance could be wrong. Apart from possible unrest in Hong Kong as a result of security laws, the previous privileges are in the trade and therefore one Currency peg no longer necessary for a satellite. If the peg were given up, it would probably be a clear one Devaluation of the HK dollar come, experts say. Investors who want to bet look after the exchange rate pair US dollar / HK dollar after a call. It is interesting with this speculation that due to the small fluctuations, even with the very speculative knock-out product (ISIN: DE 000 MC3 NB5 4), a total loss cannot be expected. And so the risks for an investment that is limited until the end of the year are manageable. If the peg fell, the call would leverage a possible devaluation of the HK dollar by more than twelve times.
Our columnist Jörg Lang has been dealing with stocks since 1988.
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