From a macro perspective, HKD rates should face moderate upward pressure over the medium term. Economic conditions remain resilient, with 3Q GDP growth coming in stronger than expected at 5.2% YoY yesterday, accelerating from 4.2% in 2Q (expanding 1.9% QoQ sa). Growth was largely propelled by the AI supercycle. Externally, exports and imports surged 30.4% YoY and 29.9% YoY respectively in 3Q alongside buoyant regional semiconductor trade. Headline merchandise trade deficits should be offset by inventory accumulation as re-exporters build up stocks for future demand. Investment also accelerated from 3.7% to 7.3% YoY, mirroring improvements in loan growth particularly from the tech sector. Meanwhile, infrastructure development and R&D initiatives tied to the Northern Metropolis project are driving public investment and related bond issuance. This growth momentum and investment demand are translating into upward pressure on HKD rates, especially at the long end.
That said, we remain watchful regarding consumption and asset markets. Private consumption expenditure (PCE) growth held steady at 2.8% YoY; while tourist arrivals and spending continue to improve, the boost to retail sales is partially offset by soft domestic spending. The jobless rate edged up to 3.9% in 3Q, and the Hang Seng Index is hovering at lower levels around 23,000. Momentum in the property sector has also cooled, with weekly transactions across 35 major estates dropping from 72 in 1H to 41 since July. Furthermore, Mainland capital flows and taxation measures could weigh on Hong Kong asset market sentiment. The upshot is that softer demand for HKD assets could place a cap on rates. For detailed analysis, please refer to our macro report to be published today.
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