HKD rates showed little change after the FOMC meeting. 1M HIBOR has fallen to 2.68% yesterday from the quarter-end high of 2.95%. 1Y HKD IRS has been hovering around the 3.40% level. As the Fed remains on hold, the near-term risk of higher HIBOR should remain in check. However, we see several upside risks ahead. First, the UST curve has been steepening alongside stronger rate-hike expectations. If DXY strength remains, HKD could continue to move towards the weak side of the trading band. In fact, the HKD has been weakening despite a narrowing negative spread against the USD. The odds of potential HKMA intervention are therefore stacking up.
Second, the stock market has shown resilience. The Hang Seng Index is heading towards the 26,000 level, while average daily turnover reached HKD286 bn. Optimism over stimulus measures from the Politburo meeting, support from the “national team” in the stock market, and positive sentiment towards China’s tech sector are translating into demand for HKD assets and, in turn, higher HIBORs.
Third, improving borrowing sentiment should add upward pressure to HKD rates. Public sector loan issuance has gained traction amid accelerating infrastructure spending, while the private sector should start gearing up as well. The property market has held up well, with the Centaline City Leading Index up by 10.6% YTD. We expect a total increase of 15% in 2026. Inventory has fallen from the peak of 23,000 units to 17,000 units in 2Q. Developers are expected to resume land acquisition soon. Related borrowing activities should return.
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