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Takeaways from the HKMA’s DEC Bulletin

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  • Post last modified:December 21, 2018

Every quarter the Hong Kong Monetary Authority (HKMA) puts out an update on the banking sector and another topic of interest. Here are the main takeaways investors should note from their most recent post.

The feature article this quarter was an update on the FX and derivatives markets. Hong Kong is quickly becoming a hub for traders. According to the article, the average daily turnover in FX and OTC interest rate derivatives markets was valued at $546 Billion USD for Hong Kong alone. For reference, the top geography was the United Kingdom, coming in at $2.5 Trillion USD. Three short years ago Hong Kong was trading $303 Billion USD in daily turnover. In just 3 years Hong Kong trading increased by 80%, now ranking 4th in the world. As interest rates rise, lockstep with the USA, volatility will likely return and layer in another reason to trade these products as a hedging tool.

The HKMA concluded that Hong Kong is a growing financial center and key player in offshore renminbi (CNH) trade…not to be confused with CNY, which is onshore (inside China) renminbi. However, USD/JPY had the largest market share in Hong Kong FX trading, with 21.2% of average daily turnover going to dollar yen.

The other focus of the bulletin was on banking sector.

According to data compiled by the HKMA, banks are in a better place on a number of levels. For example, net interest margins expanded by 2 bps from 1.30% to 1.32% during the first three quarters of 2016. Net interest margins are essentially the spread between interest income and interest expenses, or the difference between what banks get on a loan vs what banks need to pay to depositors. Investors put a lot of stock in this number, so this is certainly a data point to watch going forward.

Otherwise, the HKMA indicated that growth in the banking sector was driven by increases in income from derivatives operations, dividends from subsidiaries, and lower operating expenses. However, banks did experience a slight fall in fee revenue.