The Hong Kong Monetary Authority said local stock and property prices may be driven higher once China allows the yuan to resume gains, as the city become more affordable to mainland investors.
“A substantial appreciation of the renminbi would support asset prices in Hong Kong,” the central bank said in its June Quarterly Bulletin, using another name for the Chinese currency. Expectations of a gain “may suffice to pull capital into Hong Kong,” the HKMA said in the report published on its website.
Further inflows of Chinese money into Hong Kong may complicate government efforts to cool home prices, which have risen 41 percent since the end of 2008. U.S. Treasury Secretary Timothy F. Geithner said last week China should allow more flexibility in the yuan, while loan, inflation and export data have fueled speculation gains may be allowed.
The impact on consumer-price inflation due to higher import costs will likely be “modest,” the report said, adding that the impact on asset prices “could be more significant.”
The authority cited research suggesting a 10 percent gain in the yuan against the Hong Kong dollar would add 0.4 to 0.6 percentage point to the city’s inflation rate. No data were given regarding the possible impact on asset values.
“Hong Kong’s equity and property markets might benefit from increased potential buyers on the mainland,” the HKMA said.
Editors: Dirk Beveridge, Matthew Brooker