YU Weiwen: Hong Kong Monetary Authority considers retaining more cash and shorter-term money market products

According to Dolphin Research, on September 20th, the Chief Executive of the Hong Kong Monetary Authority (HKMA), Eddie Yue, stated in a speech at the China Investment Forum that with the increase in uncertain macroeconomic factors, it is necessary to ensure that investment portfolios (including foreign exchange fund investments) have sufficient liquidity and "timely" liquidity buffers. To help enhance liquidity, the HKMA, as a reserve manager, will consider taking measures such as holding more cash and shorter-term money market products.

He further emphasized the importance of diversifying investments to stabilize investment returns. In recent years, RMB bonds have been the best diversified investment in the HKMA's fixed income investment portfolio. Diversification remains the first effective line of defense against market uncertainty, and the HKMA will continue to diversify investments across different asset classes, regions, and currencies.

Yue mentioned that last year, stocks, bonds, and currencies denominated in US dollars all declined. However, since the second quarter of this year, the macro environment has improved, supply chain disruptions have eased, and inflation pressures have moderated. It is expected that the interest rates of major central banks will soon reach their peak. Even with rising interest rates, the global economy is more resilient than expected and is more likely to experience a soft landing rather than a recession.

However, Yue also pointed out that although overall inflation is trending downward, core inflation remains high, and there is still a high degree of uncertainty about how long it will take to reach the central bank's target. This is especially true due to population changes leading to a sustained tight labor market, as well as intensified geopolitical and economic diversification, which will increase input costs and push up inflation, as well as driving global supply chain restructuring and transition to clean and renewable energy.

He believes that with high core inflation, the central bank's monetary policy may remain tight for a longer period of time, and with weak economic growth, the investment market still faces strong resistance and the risk of economic recession. The environment of low inflation, low interest rates, and stable growth before the COVID-19 pandemic may have become a thing of the past, and the market is entering a new macro environment of rising inflation, rising interest rates, and more unstable growth.