Ackman Won’t Realize Bet on Hong Kong’s Peg, K.C. Chan Says

Ackman Won’t Realize Bet on Hong Kong Dollar Peg, K.C. Chan Says
All but one of the 20 analysts polled by Bloomberg in November said they expect Hong Kong’s fixed exchange-rate system to last for at least five more years. Photographer: Jerome Favre/Bloomberg

Hedge-fund investor William Ackman won’t realize his bet that Hong Kong will amend its 29-year-old peg to the dollar, said K.C. Chan, the city’s secretary for financial services and the treasury.

The Hong Kong Monetary Authority has injected almost $14 billion since Oct. 19 as the local currency’s move to HK$7.75 obliged it to buy U.S. dollars in the foreign-exchange market. Ackman, the founder of New York-based Pershing Square Capital Management LP said Oct. 20 he was keeping his call contracts on the city’s currency and suggested Hong Kong revalue its dollar 30 percent higher versus the greenback to curb inflation.

“There is no question about the peg at all,” Chan said in a Bloomberg Television interview today at the Asian Financial Forum in Hong Kong. “He will be disappointed. I don’t expect him to realize his bet.”

The Hong Kong dollar traded at HK$7.7526 per dollar as of 3:30 p.m. in the city, little changed from HK$7.7521 at the end of last week. It touched HK$7.7532, matching a Jan. 11 level that was the weakest in three months. The benchmark Hang Seng Index has risen 8.5 percent since Hong Kong made it first intervention in three years on Oct. 19.

“The fund flows coming in, as I understand, are mainly for investment into the equity market,” Chan said. “Some of the fund flows are there because the local corporates are borrowing in the U.S. dollar space and China corporates in Hong Kong dollars. What we are seeing is so far quite normal for portfolio allocation and fund-raising activities.”

Peg Outlook

Hong Kong linked its exchange rate to the U.S. dollar in 1983, when negotiations between China and the U.K. over the city’s return to Chinese rule spurred capital outflows. In 2005, policy makers committed to limiting the currency’s decline to HK$7.85 per dollar and capping gains at HK$7.75.

All but one of the 20 analysts polled by Bloomberg in November, including Citigroup Inc. and JPMorgan Chase & Co., said they expect Hong Kong’s fixed exchange-rate system to last for at least five more years. There is no better alternative to the existing peg as the yuan is not yet fully convertible, John Greenwood, the London-based chief economist at Invesco Asset Management who was credited with designing the exchange-rate system, said at a Jan. 11 briefing in Hong Kong.

December’s 14.1 percent jump in Chinese exports was the biggest positive surprise since March 2011, according to data compiled by Bloomberg, The unexpected surge renewed concern from analysts at Goldman Sachs Group Inc., UBS AG and Australia & New Zealand Banking Group Ltd. that statistics from the nation can be unreliable.

China Recovery

“I believe the data we have seen in the past months do suggest a recovery,” Chan said. “China’s economic performance is improving. But we should know that China is not going to go back to very high growth, without regard for the quality of that kind of growth.”

China has started preparations for a trial of its qualified domestic individual investor program, which would allow individuals to invest in overseas capital markets. The central bank lists the so-called QDII2 initiative as one of its major goals for 2013.

“I don’t expect a major relaxation in terms of giving individual investors access to the worldwide markets without some kind of quotas or some kind of control arrangement,” Chan said. There will be more exchange-traded funds sold in Shenzhen and Shanghai that allow Chinese investors to buy Hong Kong shares, he said.

Hong Kong won’t set up a government-owned investment company that’s similar to Singapore’s Temasek Holdings Pte., Chan said.

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