Dollar Breaks 7 Yuan... Pressure on Hong Kong Stock Market

(Photo by Bloomberg)

[Asia Economy Reporter Junho Hwang] As the Chinese yuan exchange rate surpassed 7 yuan per dollar, there are forecasts that the difficulties in the Hong Kong stock market will intensify.

Park Suhyun, a researcher at KB Securities, predicted on the 17th, "Downward pressure on the Chinese economy is expected to continue until the end of the year, making it difficult for the yuan exchange rate to show a significant rebound in the short term." On the 15th, the yuan exchange rate traded in the Hong Kong offshore market exceeded 7 yuan per dollar.

Currently, the Chinese economy is struggling to find a trigger for recovery due to the worsening real estate market, the maintenance of COVID-19 prevention policies, and the absence of fiscal policy. Additionally, unlike the United States, China is lowering its benchmark interest rate, which has steadily raised concerns about capital outflows considering the US-China interest rate differential.

Researcher Park forecasted, "In the short term, foreign exchange reserves and additional cuts in the foreign currency reserve requirement ratio will alleviate the depreciation pressure on the yuan." He also expected that major announcements such as changes in COVID-19 prevention policies and strengthening of fiscal policies are likely to occur after the Party Congress on October 16, when President Xi Jinping’s third term will be decided.

He added, "Despite economic concerns, the Chinese government has not been able to fully launch fiscal policies because local governments are financially strained," and "local government fiscal revenues are closely related to real estate, and to address this, the government is likely to expand credit supply through shadow banking channels," he observed.

From an investment perspective, he said, "Besides concerns about the slowdown in the Chinese economy, many Chinese healthcare companies, which the US has recently intensified pressure on, are listed on the Hong Kong stock market, and the Hong Kong market has a high proportion of foreign investors sensitive to US-China conflicts," recommending "building a portfolio focused on the Chinese mainland," and expecting that "the food and beverage, leisure, and banking sectors will show relatively favorable trends."

This content was produced with the assistance of AI translation services.