Rani Jarkas — The Great Impact of the RMB on Hong Kong
The constant appreciation of the RMB against the US dollar and Hong Kong dollar and the related theories have been imperative driving forces to financial markets and economic activities in Hong Kong. As there’s been a collapse of some psychologically crucial exchange levels, it becomes important for Hong to assess the impacts and prepare for the changes. This is because the exchange risks have been restricted as of yet.
The appreciation and Hong Kong economy
A highly valued RMB will definitely impact the economy of Hong Kong in both direct and indirect ways, as believed by Rani Jarkas, Chairman of Cedrus Investments, a global boutique investment firm headquartered in Hong Kong.
Indirectly, it drives capital inflows into Hong Kong, which drives down interest rates on a local level. That’s not all! It also creates an accomodative fiscal environment and produces hefty wealth effects from a flooding stock market
when economic as well as corporate profit growths are still going strong. Subsequently, domestic investment and consumption are enhanced when the stock market seems to move up for the fourth year consecutively, shifting the main growth momentum inward and amplifying the feasibility of quick advancement.
But it’s important to point out that the appreciation expectation may not be the most crucial driver for inflows, let alone only the driver. The fact remains true that Hong Kong has restricted RMB denominated assets. Global capitals are chasing the high growth story of China and the premiums embedded in Chinese shares due to the RMB appreciation.
Balanced investigation shows that the appreciation may even be harmful for some lower value added export enterprises, import replacement enterprises, or commercial banks holding foreign currency positions.
Rani Jarkas accepts the fact that most booming market currencies in Asia appreciate more against the USD when compared to the RMB. In such a situation, it’s mainly capital gains that global investors are after the Chinese shares.