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Currencies
OpinionComment
Neal Kimberley
Neal Kimberley

Macroscope | US dollar strength lets Hong Kong investors go back to the future

  • When the US dollar surges on the foreign exchanges, as it is now, the Hong Kong dollar also gains in value against other major currencies
  • This strength spells opportunity for Hong Kong investors who want to diversify their portfolios abroad

Reading Time:3 minutes
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Apartments alongside the canal in the city centre of Birmingham. The rapidly weakening pound and the Hong Kong dollar’s recent strength have made Britain an increasingly attractive place for Hongkongers looking to invest overseas. Photo: Getty Images
Neal Kimberley
The mooncakes have been eaten and the lanterns in Victoria Park admired. But even as Hongkongers have enjoyed the Mid-Autumn Festival, the currency markets have rolled on.
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Right now, trends on the foreign exchanges offer great opportunities for cash-rich Hong Kong investors looking for international portfolio diversification, and it’s all down to the linked exchange rate system.

When the US currency is surging on the foreign exchanges, as it is now, the Hong Kong dollar also gains in value against other major currencies. Its capacity to weaken against the rising US dollar is always limited by a system that obliges the Hong Kong Monetary Authority to ensure that Hong Kong’s currency does not stray outside a range of HK$7.75 to HK$7.85 to the US dollar.

In these circumstances, any Hong Kong investors now looking to invest overseas should give a nod to John Greenwood, the chief architect of Hong Kong’s linked exchange rate in 1983.

Back then, Greenwood’s proposal was aimed at devising a scheme to avert Hong Kong dollar weakness, but his solution to that problem remains the basis of the linked exchange rate system to this day. In the current circumstances of broad US dollar strength, this is evidenced in accompanying Hong Kong dollar appreciation against many major currencies.

That Hong Kong dollar appreciation means that Hong Kong investors looking to invest overseas get a large amount of bang for their Hong Kong bucks. The British pound-Hong Kong dollar exchange rate is a case in point.

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