Hong Kong Dollar Strength to Persist on Ant Group’s Mega Listing

(Bloomberg) — A mega share sale by Ant Group is likely to boost demand for the Hong Kong dollar, pinning the currency at the strongest it is allowed to trade and prompting government intervention.

The Hong Kong dollar has repeatedly touched 7.75 versus the greenback this week, the strongest it can technically trade. That has prompted the city’s de facto central bank to sell the local currency for the first time in three weeks to defend its foreign-exchange peg to the U.S. dollar.

The strength comes as billionaire Jack Ma’s fintech giant Ant filed for a dual listing in Hong Kong and Shanghai on Tuesday that could raise a total of $30 billion and exceed Saudi Aramco’s record initial public offering. Large listings like this often drive up demand for funding because investors need to set aside cash to buy the stocks.

“We expect the Hong Kong dollar to re-test 7.75 in the near future,” said Carie Li, an economist at OCBC Wing Hang Bank. “More IPOs and secondary listing of firms listed in the U.S. will boost the demand for the Hong Kong dollar. Meanwhile, the upbeat investment sentiment and flush global liquidity may lead to equity inflows.”

The Hong Kong dollar has been hovering near the strong end of its trading band since April, shrugging off the death of a long carry trade and escalating China-U.S. tensions. The strength has prompted the authorities to sell the equivalent of $14.8 billion of the local currency to weaken it. The maneuvers have expanded the interbank liquidity pool to the largest since 2017, sending the one-month interest rate on the currency to a four-year low.

Previous mega listings have also caused dramatic spikes in the interbank borrowing costs, known as Hibor. In 2018, the one-month tenor on the rate soared to the highest level in a decade ahead of Xiaomi (OTC:XIACF) Corp.’s $4.7 billion IPO. Funding costs also spiked last year in the months before an $11 billion share sale by Alibaba (NYSE:BABA) Group Holding Ltd.

The Hong Kong dollar was little changed at 7.7503 as of 11:39 a.m. local time. The one-month Hibor was steady at 0.26089% Thursday. The rate affects the cost of everything from mortgages to corporate loans.