Planning for a Rainy Day: Response to the US Delisting

The U.S. Federal Reserve has announced that, beginning next year, it will limit the scope of monthly asset purchases and commence delisting procedures. The U.S. Federal Reserve delisting has already triggered fluctuations in global capital, which will inevitably impact developing markets. As a free and open center of international finance, Hong Kong is currently accepting hot money to promote the inflation of the assets bubble. Yet it needs to be more aware of the effects of the U.S. Fed delisting, guard more strongly against financial risks, proactively maintain the development of true economic health and, as much as possible, keep the possible shock caused by delisting to a minimum.

The Fed’s launching of superlow interest rates and its numerous lenient policies are both extraordinary measures, impossible to maintain forever. Over the past year, sounds of delisting have come and faded in endless succession. Finally this game of “crying wolf” has been clearly settled. The Fed has declared that from January of next year monthly asset purchases will be reduced $10 billion, simultaneously reinforcing the farsighted vision of superlow interest rate policy, taking the first step away from lenient policy. The impact of America’s delisting can be seen from two sides: First, due to the amount of lenient policy, hot money worldwide will overflow with profits, while developing markets must face the pressure of inflation and the risks surrounding the assets bubble will increase. Right now the U.S. is systematically beginning to reduce its purchase of bonds; in developing markets, this may be a positive thing in the long term. But, on the other hand, if the U.S. economy is to maintain its growing momentum, next year the Fed must persist in reducing the scope of its bonds purchases, and this could lead to a massive return of global hot money to the U.S. Is it possible for future developing markets to break out of this new cycle of financial turmoil, drawing the global market’s close concern?

Hong Kong is an international center of finance, where capital comes and goes freely. The potential negative impact of U.S. delisting should not be overlooked. The U.S. is formally launching a delisting plan, and the rest of the world is worried this may lead to a large quantity of funds flowing out of Hong Kong, increasing its financial costs. Financial Secretary John Tsang said yesterday that Hong Kong would not rule out raising interest rates for the U.S. but reminded investors to do well with interest risk management beforehand. Although the Hong Kong financial system is strong and stable at present, one must prepare for a rainy day and strengthen awareness of risks to the financial system as well as the real estate market. In trying to adapt to the past several instances of financial crisis, capital markets have often fluctuated substantially. Hong Kong’s stock market is liable to be brought down by the elite of international finance, becoming an “ATM,” violently exploited for profit. The government must control capital, strengthen oversight of the financial market and prevent people from stirring up trouble in Hong Kong under the pretext of delisting. At the same time, Hong Kong’s real estate market has time and again created innovations under the hype of hot money. For the effects of delisting, a trial is imminent. The government really must act according to the situation in a timely manner and revise real estate policy to avoid its rapid decline causing a huge panic.

The Fed’s delisting is the result of improvements in America’s employment and the underlying warming of the economy. This reflects the fact that America’s true economy is now steadily and surely recovering. Yesterday’s per share stock improvements are the positive result of delisting, revealing that the rising stock market has a real economic backing. It is thus made clear that it is difficult for the hyped effects of hot money to endure; it is true economic growth that provides an important safeguard for the stability of the overall economy. Therefore, in the future, Hong Kong should focus more on economic cooperation with domestic and neighboring regions, accelerating the diversification of industrial development and enhancing the resilience of the economy.