Forex Comment Jul 21

Open Sesame: Of ants and HK dollars

Ant Technology Group is planning IPOs in Hong Kong and Shanghai this year and funds have begun to flow into the city; for the HKD and Alibaba firms this is proving a boon

Open Sesame: Of ants and HK dollars
A self-service machine backed by face recognition technology of Alipay, the online payment service of China's e-commerce giant Alibaba's Ant Financial, is used to pay fees at a hospital in Zhejiang province in July 2019. Ant is planning IPOs in Hong Kong and Shanghai later this year, and Hong Kong is already reaping the benefits. Photo: Imaginechina/ AFP.

(ATF) For the seven days from July 10 to 17, the Hong Kong dollar experienced an unusual bout of weakness, coming off the high end (7.7500) of its permissible trading range with the US dollar and bouncing around between 7.7526 and 7.7539. 

A hopeful US Trump administration official saw it as a sign that US sanctions (revocation of Hong Kong's special trading status) were beginning to achieve an effect. Bloomberg News chimed in with the same view.

As I wrote at the time, it was nothing of the sort. 

Rather, continual interventions on the part of the Kong Kong Monetary Authority for a total of nearly US$14 billion since April had pushed the interest rate on the HKD substantially lower, narrowing the gap between USD and HKD rates, killing the speculative HKD carry trade and thereby reducing HKD demand.

That demand started being restored from another source: Billionaire Jack Ma's Ant (Financial) Group, recently renamed Ant Technology Group.

Ant, which is valued as high as US$200 billion, has let it be known that it is planning simultaneous initial public offerings in Hong Kong and Shanghai (STAR board) later this year, bypassing New York.

Ant has reportedly picked CICC, Citigroup, JPMorgan and Morgan Stanley for the Hong Kong offering and funds have begun to flow into the city. The Hong Kong offering could raise over $10 billion. The Shanghai share sale could bring in twice as much for a combined world beating IPO total of $30 billion.

For the HKD, not only anticipation of the Ant IPO, but also inflows into Ant-related companies of the Alibaba empire listed in Hong Kong is proving a boon.

Alibaba itself will be a direct beneficiary of the Ant listing as the company has 33% of Ant, since last September. Alibaba stock (09988 HK) rose by 7.26% today.

Other companies in the wider Alibaba group also recorded strong gains on high volume: Ali Health (00241 HK) was up 13.82%; Yunfeng Financial (00376 HK) rose by 6.81%.

And an indirect beneficiary was the Hong Kong stock exchange itself: HKEX (00388 HK) closed on a 3-year high, up 9.83%.

With those and other tech companies' strong Hong Kong market inflows, the HKD had risen to 7.7509 by noon today and at 6pm HK time traded at 7.7517.

The mainland Chinese currency maintained its recent strength. The PBoC had set central parity at 6.9862 on Tuesday morning. At 6pm, it was little changed at 6.9894.

And the almighty USD? It traded at 95.6750 on the DXY at 6:30pm, a bit above its year-to-date low of 95.5790 on February 1.

ALSO SEE: China banks' bond underwriting jumps 29% 

Car industry sees bright future – analysts don't 

China turns divided bond markets into 'one-stop shop'