Hong Kong Turns into World’s Must-Watch Market with the Mounting Financial Strain

Hong Kong is quickly turning into a must-watch market with a clouding financial outlook marred by the U.S. Federal Reserve’s tightening monetary policy and China’s pandemic-ravaged economy.

According to Bloomberg News, although Hong Kong holds $466 billion in foreign reserves and an abundance of cross-bank liquidity which can cushion the country against a sudden fiscal crunch, several indications have been pointing towards a potential financial constraint that has been brewing for a while now.

Even before the Fed announced its interest rate hikes, Hong Kong’s Hang Seng Index tumbled by 40% this year till March 15, marking it as one of the worst global performers. The country’s financial non-reserve assets also plummeted by $48.3 billion in 2021. These substantial losses have been considerably affecting the country’s fiscal capacity to offset potential crises with its wealth fund losing $7 billion during the first quarter and a five consecutive month drop of foreign assets culminating in a plunge of $15.9 billion in April, reported Bloomberg News.

Rujing Meng of the University of Hong Kong said, “What’s difficult to predict is how bad sentiment can get globally. Things could get very volatile and systems could break before people get used to quantitative tightening. Hong Kong can’t be immune to that.”