Hong Kong vs. the new legislation - UOB

FXStreet reports that UOB Group’s Heng Koon How, Ho Woei Chen, CFA, Alvin Liew and Suan Teck Kin, CFA, assessed the potential effects for Hong Kong of a change in US policy.

“In this report, we look at the implications if the US were to revoke policy privileges for Hong Kong, in response to mainland China’s proposed national security law on Hong Kong. We focus on the prospects of US withdrawing the special trade priviledges for Hong Kong (including policy areas that US could consider) and the impact on US, mainland China and Hong Kong.”

“Impact on US businesses could be larger than on Hong Kong’s given that US exports significantly more in both merchandise goods and services to Hong Kong. Furthermore, trade relations with China is definitely a key consideration given that China is one of US’ largest trade partner.”

“Hong Kong is still important to China as an international financial centre as well as an export and trade hub. Hong Kong's importance to China as a financial centre is likely to remain for some time despite competition from fellow cities such as Shanghai and Shenzhen.”

“It is conceivable that with tightened scrutiny of US-listed mainland Chinese companies by the US government, Hong Kong’s role as a financial centre will become even more important to the mainland.”

“There is unlikely any impact on free flow of capital in Hong Kong with the new national security law.”

“The HKD peg is unlikely to be undermined given that it is under the purview of Hong Kong government and backed by the substantial foreign reserves in Hong Kong. We expect HKD to stay strong despite elevated political risk. Overall, we expect USD/HKD at 7.76 in 3Q20, 7.78 in 4Q20 and 7.80 in 1Q21 and 2Q21.”