Why analyst thinks Hong Kong's liquidity boom will reverse

HK unlikely to withdraw admin measures.

According to UBS Investment Research, Hong Kong has been riding a liquidity boom since 2009. Strong capital inflows and record low interest rates have pushed leverage and asset prices higher as a result of US monetary policy and Hong Kong’s linked currency to the USD.

But going forward Hong Kong’s liquidity boom should reverse, says UBS.

Here's more:

US monetary policy, in particular the timing of a QE exit, will present a major challenge for Hong Kong. Even fears of QE tapering could result in capital outflows, pushing up domestic interest rates long before short rates in the US rise.

Furthermore, Hong Kong is unlikely to withdraw administrative measures designed to cool its overheated property market. Policymakers remain legitimately concerned after 5 years of ultra loose liquidity conditions.

The US Fed’s recent decision to delay QE tapering only postpones the inevitable tightening in liquidity for Hong Kong. It does not fundamentally alter the challenges Hong Kong will face in the years ahead.