Catenaa, Wednesday, February 19, 2025- The increasing demand for Hong Kong (HK) equities has caused local banks to borrow $ 707 million to maintain interbank liquidity on Tuesday, the largest overnight cash amount since 2019.
Data compiled by Bloomberg said the Hong Kong Monetary Authority has loaned out HK$ 5.5 billion ($ 707 million) through its so-called discount window, the most since December 2019.
“The tightening of liquidity in Hong Kong is, in our view, driven by demand for HK equities,” said Wee Khoon Chong, a strategist at BNY to Bloomberg, while Liquidity “probably will stay tight in the near term as HK equities’ momentum continues.”
The lending comes as benchmarks for Chinese stocks traded in the city and Hong Kong equities have both outperformed global peers in the past month amid optimism over DeepSeek’s artificial intelligence capabilities.
The rally has gathered even more momentum by bets that China may be adopting a more business-friendly stance following a meeting between President Xi Jinping and prominent entrepreneurs.
When Chinese and overseas investors buy Hong Kong shares, they need to convert their foreign exchange holdings into the city’s dollars, leading local banks to seek more cash in the money market for their clients, leading to a surge in funding costs.
Chief Asia foreign exchange and rates strategist at Bloomberg Intelligence, Stephen Chiu, said some lenders may have resorted to Hong Kong’s central bank for such temporary liquidity during this process.
Investors’ stock purchases “could also cause temporary liquidity swings because not all banks have unlimited trading limits with other banks so might have to use the HKMA’s discount window,” he added.
The one-month funding costs in Hong Kong surged some 40 basis points over the past week to 4.07%, a near six-week high, amid a rebound in local stocks.
Data compiled by Bloomberg showed Chinese mainland investors bought HK$ 22.4 billion worth of Hong Kong stocks on Tuesday, which is the biggest daily purchase since early 2021.
