HKD rates could see further upside amid strengthening growth momentum. Hong Kong’s economy expands by 5.9% YoY in 1Q26, up from 4.0% in 4Q25. Sequential growth hit 2.9% QoQ, the fastest pace since the reopening from COVID lockdown in 1Q23. Private consumption rises by 5.0% YoY, supported by positive wealth effects from a buoyant equity market. Among the 42 IPOs year-to-date, average first-day performance reaches 43.2%. Inbound tourism also improves alongside a firmer RMB exchange rate. Government consumption accelerates as revenue from both stamp duties and profits/salaries taxes improves. As foreign corporates return, gross fixed capital formation posts double-digit growth for a second consecutive quarter. Developers are also resuming land acquisitions and project construction. Meanwhile, inventory accumulation surges as importers, exporters, and domestic wholesalers stock up in anticipation of stronger demand. On the external front, the widening trade deficit remains a drag, although it is not particularly concerning. Both exports and imports of goods surge by more than 20% YoY, driven by robust regional and domestic demand for electronics amid ongoing AI-related investment.
Against this backdrop, stronger domestic demand should place additional upward pressure on long-end yields. Front-end HIBORs are also likely to rise further as loan demand strengthens. Indeed, loan growth accelerates to 3.9% YoY in March. Looking ahead, personal loans, particularly mortgages, should remain the key growth driver amid a recovering property market. Loans to financial institutions are likely to stay well supported by IPO activity, stronger equity market turnover, and rising cross-border investment demand. Likewise, resilient regional trade activity should continue to underpin trade finance growth. Corporate loan growth could also return to positive territory entering 2H26 if demand conditions continue to improve. The Northern Metropolis and other infrastructure projects will fuel the bond issuance across public and private sectors (see: HKD rates: Equity flows and Bond Issuance Push Yields Higher). For details on HK GDP, please refer to our report to be released today.
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