VZCZCXRO3520
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #2034 3101137
ZNR UUUUU ZZH
R 051137Z NOV 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 6180
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS HONG KONG 002034 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT:  Demand for HK$ Increases, Hang Seng Moves Up Steadily 
 
¶1. Summary: The Hong Kong stock market responded positively to 
Barack Obama's victory in the U.S. Presidential election, though 
commentators raised concerns that U.S. trade policy would become 
more protectionist.  The HKMA has intervened several times over the 
past three days as demand for HK$ increases.  HIBOR has also 
loosened, although analysts disagree whether the two are linked. 
The Hang Seng Index gained 3.17 percent or 455.82 points today, 
closing at 14,840.16 with a daily trade of HKD 63.4 billion.  End 
Summary. 
 
¶2.  Following the extreme volatility of the last week of October, 
The Hang Seng Index has stabilized in first three trading days of 
November.  The Index has gained 6.2 percent since closing last 
Friday at 13968.67.  Still, no analyst dared to predict the end of 
the roller-coaster ride.  The 40 percent rebound from the intraday 
low recorded Monday last week (October 27), when the Hang Seng 
touched 10676, was described by cautious investors as "too strong 
and too quick". 
 
HKMA Intervenes - HIBOR Falls 
---------------   ----------- 
 
¶3.  The Hong Kong Monetary Authority intervened for the third time 
in four days as the Hong Kong dollar approached the strong side (HKD 
7.7500/USD) of the pegged rate.  After selling US$ 363 million (HKD 
2.813 billion) last Friday, HKMA added injections of US$ 110 million 
(HKD 853 million) on Monday and US$ 105 million (HKD 814 million) on 
Tuesday to check the increasing demand for Hong Kong dollars.  The 
HKMA noted that the calls for HK$ were small and diffuse, suggesting 
several investors were seeking relatively small amounts of the 
currency.  Officials speculated that Hong Kong investors were 
bringing money back to boost local liquidity.  On Thursday the 
interbank market in Hong Kong will have an aggregate balance of over 
HKD 30 billion, more than double the recent average. 
 
¶4.  HIBOR quoted by Hang Seng Bank at 4:43 pm today dropped to 0.50 
percent for overnight and one week (0.75 percent on Monday), 1.4 
percent for 1-M (2.15 percent on Monday), 2.55 percent for 3-M (3.2 
percent on Monday), and 2.85 percent for 6-M (3.4 percent on Monday) 
borrowings. 
 
¶5.  Hang Seng Bank General Manager Andrew Fung told Hong Kong Cable 
TV this afternoon that HIBOR would fall gradually as the Hong Kong 
Monetary Authority continued to inject liquidity. Fung admitted, 
however, that the fall in HIBOR would not immediately affect banks' 
lending rate to retail customers.  Bank of East Asia Chairman David 
Li told Hong Kong Economic Journal (Nov. 4) that the fall in HIBOR 
could reflect the return of confidence among Hong Kong bankers. 
However, Li did not see any room for cutting interest rates on new 
mortgage loans, as property prices are expected to fall in coming 
months.  HKMA officials dismissed the effect of their recent 
interventions on HIBOR, noting that the sales of US$ were far too 
small to significantly affect interest rates in Hong Kong.  They 
attributed falling interest rates to increased confidence in the 
local banking system, in part due to improvements abroad.