Core Viewpoint - The article discusses the impact of Hong Kong dollar liquidity changes on the Hong Kong stock market, emphasizing the relationship between liquidity management by the Hong Kong Monetary Authority (HKMA) and market dynamics [1][2][3]. Group 1: Hong Kong Dollar Liquidity Management - On June 26, the HKMA sold US dollars and bought HK dollars to withdraw 9.42 billion HKD from the market due to the HKD exchange rate reaching the weak end of the peg [1]. - Following this, on July 2, the HKMA withdrew an additional 20.018 billion HKD, indicating a proactive approach to managing liquidity in response to market conditions [1]. - The HKMA operates under a linked exchange rate system, maintaining the HKD to USD exchange rate within a specified range, which influences liquidity and interest rates in the banking system [1][2]. Group 2: Market Dynamics and Investor Behavior - The liquidity withdrawal is seen as a response to an earlier excessive liquidity injection in May, where 129.4 billion HKD was injected into the market, leading to a significant increase in interbank liquidity [2]. - The HKMA's actions reflect a dynamic balance in response to changing investor confidence in the USD and the influx of southbound capital, which has affected the demand for HKD [2]. - The article notes that the short-term interest rates (Hibor) remained low for an extended period, indicating a misjudgment in the banking system's demand for HKD [2]. Group 3: Future Outlook for HKD and Hong Kong Stocks - Despite the liquidity recovery, the article suggests that HKD liquidity will remain relatively abundant, with the primary influence on the Hong Kong stock market being the underlying economic fundamentals [3]. - The historical correlation between Hong Kong stocks and domestic economic indicators is emphasized, suggesting that Hibor's rise will primarily impact market sentiment rather than fundamentals [3]. - The article expresses optimism for the medium to long-term performance of Hong Kong stocks, driven by improved shareholder returns and an increase in high-quality companies amid supportive growth policies [3].