On two days within a week late in October the Hong Kong Monetary Authority intervened in the currency markets to contain the value of the local currency. Action was taken to maintain the exchange rate within the allowable range relative to the US dollar and buttress the currency peg. Some US$1.25bn was taken out of circulation and the flows are expected to continue as international investors and speculators alike take advantage of some of the side-effects of the latest round of monetary stimulus in the US known as QE3.
The authority intervened five times before the month-end, injecting HK$17bn (US$2.2bn) in total. This is perhaps the clearest evidence yet that the latest action taken by the US central bank threatens to stimulate the appetite for investment in Asia and be the catalyst for a revival in asset prices across the Asian region.
During September and October China shares listed in Hong Kong rose by more than 15 per cent, lifting sentiment for a beleaguered asset class that had underperformed its regional peers for the prior 12 months.