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Thursday, September 12, 2019, 14:45
Outside the box
By Peter Liang
Thursday, September 12, 2019, 14:45 By Peter Liang

Central banks in many economies around the world are cutting interest rates and pumping liquidity into the systems in an almost concerted effort to avert a global recession brought about by, among other things, the Sino-US trade dispute.

Even in the United States where the economy is humming along quite nicely, accompanied by record low unemployment rate, there is a strong call by none other than President Donald Trump for the Federal Reserve to cut rates more aggressively. In fact, the market is expecting another Fed rate cut next week.

The Chinese central bank, meanwhile, is said to be taking a more aggressive approach to monetary easing by a combination of interest rate cuts and and increasing liquidity, following an injection of 900 billion yuan into the banking system on Friday. It is widely expected to cut interest rate later this month.

Investors’ primary concern is what effect the global easing has on the asset markets. For Hong Kong, the biggest impact would come from the expected large inflow of excess capital from the Chinese mainland as the central bank’s projected move could prompt mainland corporations and investors to park an increasingly portion of their funds in Hong Kong dollar assets, mainly stocks and properties, to hedge against the depreciation of the yuan.

Hong Kong, meanwhile, is facing its particular set of economic problems that are complicated by the prolonged civil unrest which has dealt a serious blow to certain business sectors, particularly tourism, retail and catering. Although the economic structure has remained intact, violent protests have vividly brought its shortcomings into sharp focus.

The explosive release of the pent-up anger of many young people running amok in the streets have many economists and social analysts asking if the free market principle that is now widely blamed for bringing about abject social injustice is sustainable. Such questions are expected to continue to weigh heavily in the minds of many Hong Kong investors.

The government is trying, perhaps belatedly, to establish a “dialogue platform” to reach out to people in all walks of life, particularly the younger generation, to reach a consensus in addressing the issue. At least, it has taken the first step.    

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