After a weekend of chaotic scenes in Hong Kong, including fistfights between rival camps in the streets, Hong Kong’s outgoing monetary chief, Norman Chan, tried to present a picture of fortitude and calm to investors today.
As SCMP reports Chan saying: “The financial market in Hong Kong is much bigger nowadays than at the time during the Asia financial crisis in 1998. The short sellers who want to attack the local currency would find they would need much more bullets to carry out the attacks, which would be too expensive for them to so. As such, the public does not need to worry about the short sellers’ attack to the peg as they would not be able to repeat what the short sellers were doing during the Asian financial crisis.”
He does have a decent argument. The Exchange Fund stands at HK$4.138 trillion (US$528.73 billion), 4.5 times more than the level at the end of 1998, when it was last attacked by speculators in the wake of the Asian Financial Crisis. He also says there is no evidence of a major movement of capital out of Hong Kong.
However, one has to wonder why Chan is bothering to comment at all, if the government’s ammunition is so extensive that the public need not worry about it. While Chan says there have not been significant short positions taken against the HK dollar recently, is he seeing something he doesn’t like in the way local depositors are switching into US dollars? We will just have to wait and see.