Exchange Fund: how US$574 billion war chest defeated Soros, defended Hong Kong dollar peg in post-handover financial crises
- From the Asian financial crisis to the global crisis of 2008 and beyond, the fund has played a vital role in supporting Hong Kong’s currency and markets
- The current and first CEOs of the Hong Kong Monetary Authority look back on the fund’s success fighting off short-sellers and ensuring confidence
Hong Kong’s Exchange Fund, the HK$4.5 trillion (US$574 billion) war chest that defends the local currency, has played a vital role in maintaining the stability of local financial markets during many crises over the past 25 years.
The fund faced a test of its mettle immediately after the handover. On July 2, 1997, Thailand floated its currency in a move widely regarded as the beginning of the Asian financial crisis.
Hong Kong bankers pack luxury hotels near offices for typhoon trading
Need for minimal staff in the office creates rush on rooms at the Mandarin Oriental, Four Seasons and other centrally located hotels
Hong Kong’s bankers and traders hunkered down at home or booked hotels near their offices as Super Typhoon Ragasa descended on the Asian financial hub.
The big international banks, including Goldman Sachs, Morgan Stanley and HSBC Holdings, told most employees to work from home before the typhoon unleashed a deluge of rain and sustained winds of up to 195 kilometres (121 miles) per hour early on Wednesday.
Ragasa marked the biggest test yet for a change implemented last year by the Hong Kong stock exchange to keep trading open during severe weather.
The Hong Kong Observatory, the local weather bureau, issued its highest storm warning overnight, known as signal No 10, which indicates hurricane-force winds. The alert remained in place until 1.20pm local time on Wednesday.
With markets open, most firms needed some staff in the office to execute trades and set prices. That created a rush for centrally located hotel rooms as workers sought to avoid commutes from home.
The Mandarin Oriental, across from HSBC’s local head office, was almost fully booked when checked by Bloomberg News on Tuesday. Rooms had also been snapped up at downtown hotels such as the Four Seasons and those connected to the Pacific Place shopping centre on the edge of the central banking district.
Bankers and traders who were needed in the office were greeted with largely empty streets early Wednesday. The city closed government offices and schools. Passenger flights in and out of Hong Kong were suspended for 36 hours from 6pm local time on Tuesday.
Ragasa pushed some conferences and forums scheduled for Wednesday and Thursday online, including a gathering on fixed income and currencies. Loan bankers rushed to get paperwork signed to keep deals moving, while others dashed to the airport to catch flights ahead of the shutdown to close transactions.
Trading volume in Hong Kong’s benchmark index was about 30 per cent below the average of the last 30 sessions in early morning trading, according to Bloomberg-compiled data. The benchmark Hang Seng Index rose 1.2 per cent as of 2pm.
Activity at brokerages was curtailed on Tuesday, when the city issued its signal No 8.
“It’s just me, one trader, and our IT guy holding down the fort at the office now,” said Thomas Ip, executive director at Gaoyu Securities, in an interview on Tuesday. Clients were also closing trading positions ahead of the storm, he said.
“They’re hesitant to act until the storm passes, especially with forecasts saying this could be worse than Mangkhut,” Ip said. “Most are staying on the sidelines today and tomorrow, planning to re-enter on Friday.”
Hong Kong has one of the best-performing stock markets in the world this year, with its benchmark index gaining more than 30 per cent, according to Bloomberg’s developed markets monitor.
