VZCZCXRO5368
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #0531 0791210
ZNR UUUUU ZZH
R 201210Z MAR 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 7206
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS HONG KONG 000531 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: Inflation Fears Hit Hang Seng 
 
¶1.  Summary: Hong Kong Financial leaders and the local press are 
nervous about the impact of the U.S. Federal Reserve's latest 
announcement that it would increase its purchases of mortgage-backed 
securities and buy an additional 300 billion of U.S. Treasury bills 
over the next six months.  In addition to concerns about the U.S. 
economy, Hong Kong observers fear a depreciating U.S. dollar will 
lead to accelerating inflation in Hong Kong.  The Hang Seng fell on 
the Fed's announcement, but is up 13 percent over the past two 
weeks.  End Summary. 
 
Yam Warns of Inflation 
 
¶2.  Hong Kong Monetary Authority Chief Executive Joseph Yam warned 
Hong Kong investors to be cautious about market risks after the U.S. 
Federal Reserve Board announced its decision to increase its 
purchase of mortgage-backed securities and buy USD 300 billion worth 
of long-term Treasury Bills over the next six months.  While 
endorsing the Fed's apparent desire to pursue "quantitative easing" 
in the short-run, Yam expressed his concerns about the potential for 
rising inflation if the U.S. continued a long-term monetary 
expansion policy. 
 
¶3.  Most Chinese dailies in Hong Kong raised concerns about the 
Fed's decision to print more money as U.S. dollar depreciation and 
resulting inflation in the U.S. would impact Hong Kong through the 
local currency's link to the U.S. dollar.  The Hong Kong Economic 
Journal and Ming Pao suggested both the PRC Central government and 
the Hong Kong government should reconsider additional 
USD-denominated assets.  Ming Pao repeated its regular support for 
de-linking the Hong Kong dollar from the U.S. currency.  A Wen Wei 
Po editorial on Friday, March 20 warned that U.S. dollar 
depreciation and inflation would hurt U.S. creditors and developing 
countries.  It attributed the recent rebound in global stock and 
energy prices to investor anticipation of more rapid depreciation of 
the U.S. dollar. 
 
Hong Kong Unemployment Up, Air Traffic down 
 
¶4.  The Hong Kong Census and Statistics Department this week 
reported that the Hong Kong unemployment rate for the three months 
ending February 2009 has increased to 5 percent.  The Airport 
Authority reported that the decline in Hong Kong airport traffic 
continued in February.  Air passengers were down 13.7 percent in 
February and air cargo fell 19.7 percent from a year ago. 
 
¶5.  The Hong Kong stock market fell on fears that the U.S. Fed's 
additional Treasury purchases would force the U.S. dollar lower. 
The Hang Seng Index lost 2.27 percent or 297.41 points, closing at 
12833.51 with a daily trade of HKD 43.9 billion on Friday but was 
has climbed sharply over the past two weeks since bottoming out at 
11,344 on March 9.  HIBOR quoted by Hang Seng Bank On Friday, March 
20 stood at 0.05 percent for overnight, 0.1 percent for one-week, 
0.3 percent for one-month, 0.9 percent for three-month and 1.2 
percent for six-month borrowing. 
Donovan