Zhi Tong Cai Jing·2025-11-09 07:32Core Viewpoint - The recent strengthening of the US dollar is primarily driven by the US government shutdown, hawkish statements from the Federal Reserve, and weakness in non-US currencies, which may lead to capital outflows from Hong Kong stocks and impact local liquidity under the currency peg system [1][2]. Impact of Strong US Dollar on Hong Kong Stocks - The US dollar index has strengthened since the end of September, surpassing the 100 mark on November 4, reaching its highest level since July [1]. - The strong dollar has historically correlated with capital outflows from Hong Kong stocks, as foreign capital remains sensitive to dollar movements [3]. - Recent data shows a net outflow of HKD 791.8 billion from foreign capital in Hong Kong stocks since the end of September, with flexible foreign capital being more sensitive to dollar strength [3]. Factors Contributing to Dollar Strength - The US government shutdown has led to a liquidity crunch, with the Treasury's total account balance rising to USD 1 trillion, effectively removing about USD 700 billion from the market [1]. - The Federal Reserve's hawkish stance has cooled expectations for interest rate cuts, with the probability of a December rate cut dropping from over 90% to 61.5% [2]. - Weakness in non-US currencies, particularly the Japanese yen and British pound, has further supported the dollar's strength [2]. Local Liquidity and Market Impact - The Hong Kong Monetary Authority's currency peg system may lead to short-term impacts on local liquidity and sectors sensitive to interest rates, such as consumption and real estate [4][5]. - Historical patterns indicate that a strong dollar often coincides with rising dollar interest rates, which can tighten local liquidity if the Hong Kong dollar depreciates significantly [5]. Market Outlook - Short-term focus should be on the potential reopening of the US government and upcoming economic data, which could influence market liquidity [6]. - Mid-term prospects for Hong Kong stocks appear positive, with low valuations and potential inflows of capital, particularly in the technology sector driven by AI [6][7]. - The Hong Kong stock market is expected to benefit from a combination of increased foreign and domestic capital inflows, alongside the scarcity of quality assets [7][8].