For a long time, Hong Kong people and corporates enjoyed a free ride on the renminbi as the Chinese currency promised steady appreciation and high returns.
But the steep devaluation this week has spoilt the party for good, and everyone — be it multinational corporations operating out of IFC 2 or housewives in Ngau Tou Kok — is now seeking to repatriate money back from China to Hong Kong.
Thanks to the Stock Connect between Hong Kong and the mainland, the daily limit of transferring Hong Kong dollar to renminbi was lifted last year.
But for those who took advantage of the easier rules and shifted to China assets and chose to stick with them would have got hurt by the yuan’s downward move and the recent A-share collapse.
Apparently more corporates have been hurt, rather than benefit, from the weaker yuan.
Among international firms, Apple Inc, for instance, saw its share price move into correction territory on Wall Street as investors were concerned about the tech giant’s large China sales exposure.
In Hong Kong, the weak yuan led fashion-wear retailer I.T. Ltd. to issue a profit-warning on Thursday, with the firm saying that it estimates a HK$60 million loss from a decline in the value of its renminbi time deposits.
The tiny retailer’s decision to swiftly mark down its assets sent some shockwaves through local investing circles and also led to a guessing game as to which other cash-rich listed firms might be having huge exposure to the Chinese currency.
Last month HKTV announced the purchase of a 11 million yuan bond bearing 6.25 interest and another 15 million yuan bond of 4.85 percent interest, but the asset has seen its value come off 4 percent this week.
Likewise, Asia Financial chief executive Bernard Chan also said his company had HK$400 million exposure in yuan which earned a 3 percent coupon. With the yuan’s devaluation, the effective returns will be zero.
Apart from corporates, individuals would also now have to think twice on where to park their money once their fixed-term yuan deposits mature.
As there are fears of further devaluation of the renminbi, the Chinese unit has lost its earlier safe-haven status.
For investors, the formula that previously gave them super returns on the yuan is no longer working amid China’s new normal.
On the bright side, imported deflation could help ease the rise in consumer prices in Hong Kong. Prices will remain elevated no doubt, but they are unlikely to climb much higher.
Meanwhile, a weaker renminbi could also cool down mainland investor interest in Hong Kong property, providing some relief to locals.
That said, we should also be prepared for the negative consequences of reduced overseas spending power of the mainlanders.
There might be diminished capital flows into the local stock market, and the tourism and retail industries could also face more rough weather.
It’s time for Hongkongers to wake up to a new reality.