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Hong Kong long term interbank rates drop to nine-year low after Ant IPO pulled
[HONG KONG] Long term Hong Kong dollar interest rates reached nine-year lows on Thursday after the suspension of Ant Group's record dual listing in the city and on Shanghai's Star Market left the former British colony flush with liquidity.
The dramatic turn on the initial public offering (IPO) has also put pressure on the local dollar, leaving it prone to volatility, analysts say.
One-year Hibor - the Hong Kong interbank offered rate - dropped to its lowest since December 2011 at 0.8 per cent, while the six and three-month rates fell to their lowest since January 2016, according to official data.
Short term money also slid with one-week and two-week easing to their lowest in three months.
Ant Group had raised US$37 billion split roughly evenly between Hong Kong and Shanghai, but the listing was suspended on Tuesday when the Shanghai stock exchange said it would halt the company's IPO Star Market listing, prompting Ant to also freeze the Hong Kong leg of the deal.
As a result of the suspension of the IPO, "flooding liquidity pushed Hong Kong dollar interest rates lower across the board", said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
Money had poured into Hong Kong dollars in late September and October, as investors prepared to bid for Ant shares.
This forced Hong Kong's central bank to sell HK$251 billion (S$44.07 billion) into the market to stop its currency breaking its peg with the US dollar, pushing a measure of liquidity - the aggregate balance - to an all time high.
Whether, when, and at what scale Ant will resume its IPO is unclear, leaving the Hong Kong dollar set for a volatile time, at least within the confines of its narrow 7.75-7.85 band against the US dollar.
"If this scenario drags on, investors may decide they no longer need to park that much money in Hong Kong, or there may be a massive reduction in the value of the IPO," said Gary Ng, an economist at Natixis in Hong Kong.
"These two factors could cause hot money to flow out of Hong Kong." The Hong Kong dollar weakened to a six month low of 7.7575 on the greenback on Wednesday from 7.7520 at Tuesday's close, pressured by money leaving Hong Kong after the Ant IPO as well as due to uncertainty around the US presidential election.
On Thursday it was steady in a 7.7540-7.7558 range.