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HKD is USD or not?

HKD is pegged to USD. The fixed range is 1 USD = 7.75 – 7.85 HKD.

However, a weird thing is happening recently.

HIBOR (Hong Kong Interbank Offered Rate) is dropping dramatically.

For a USD-pegged currency, its borrowing rate normally increases or decreases with USD, and is similar to USD, otherwise arbitrage may happen.

Fed’s fund rate currently is 4.25% to 4.50%.

HIBOR 1-month dropped from 4% to below 1%. from May to Jun.

May 2nd, 1 Month HIBOR is 3.98363% vs. Jun 19th, it’s 0.53506%

A 350 bps drop in 1.5 month! Crazy world.

Three things may happen:

1/ Fed to decrease interest rate.

That will probably happen within the next 12month, but not in the July meeting.

Possible in Sep and/or Dec meeting.

2/ HK to limit money outflow.

It will become more like mainland.

But why?

HK doesn’t have the incentive to do this. And Beijing also wants a special international finance center.

Thus, unlikely.

However, there might be more mainland’s RMB converting into HKD – think about SOEs.

Since they are under the direction of Chinese gov, they won’t participate in every corner of the global capital market.

These HKD will behave like under the capital control.

3/ HKD-USD peg breaks

Too big a thing.

In short-term, seems unlikely.

In early May, HKMA needs to sell HKD and buy USD.

In early May, the exchange rate hit the strong-side CU of HK$7.75 to US$1 four times on three trading days, during both Hong Kong and non-Hong Kong trading hours. The HKMA sold HK$129.4 billion in exchange for US$16.7 billion in accordance with the LERS mechanism.

After Fed’s rate decision in June, HKMA expects carry trades may drive USD stronger against HKD and makes HIBOR higher.

If carry trades are to persist, the Hong Kong dollar exchange rate may weaken further, and may even trigger the weak-side Convertibility Undertaking. In such a case, the HKMA would then sell US dollars in exchange for Hong Kong dollars in accordance with the LERS, leading to a corresponding decline in the Aggregate Balance, hence driving Hong Kong dollar interbank rates to gradually increase.

Why TACO?

1/ Trump has a family business to grow.

The world can’t go too chaotic.

(Rich) people can’t hate the Trump brand.

2/ Trump wins by tough negotiations.

This I am not sure. But if two sides are not talking, how could negotiation happen?

If negotiation is not happening… that’s where Trump does the best.

However, if people all believes it’s only negotiation… then it becomes tougher for Trump to gain in negotiation.

That’s why I am not sure.

Fourth year of decline in household’s new debt

Charting this…

From Jan to May, China’s household added 834.7 billion mid-to-long-term rmb debt.

This is only ~30% of 2021 level (near 3tn), and 40% of 2016 level (2tn rmb). This is the 4th year of decline of newly added debt; it’s only 3% below 2024 level though.

For the full year of 2016 and 2021, China’s household added 5.7 trillion and 6.1 trillion mid-to-long-term rmb debt.

Household’s mid-to-long-term debt is mostly for home buying.

 

Notable decline in Baijiu stocks

See my previous posts on Baijiu here (Jun 2024) and here (Sep 2024) – concerns on volume growth and the ability to further increase profitability.

While premium Baijiu company like Moutai can still do ok, as key product’s market price is still higher than its ex-factory price, the price gap is narrowing, which means Moutai’s distributors are having a bad time.

The end demand is additionally weak after Chinese gov’s recent liquor ban.

Moutai’s stock price has declined by ~15% since mid-May (1645 -> 1401). Currently, Jun 16 is one of the lowest closing price in 2025, worse than Apr 7 when tariff hit.

However, this represent a buying opportunity I believe.

Besides Moutai, other Baijiu brands stock also declined. Wuliangye has declined about 15% from its peak this year. In fact, it’s more than 10% lower than end of 2019 level (~rmb 133 per share)!

Luzhou Laojiao has declined about 25% from its peak this year.

They are trading at 20x (5% earnings yield, Moutai) and 14x (7% earnings yield, Wuliangye), and 12x (8% earnings yield, Laojiao) LTM earnings, compared with ~1.6% China’s gov bond yield.

China’s home price continued to weaken MoM

Following the previous near flattish China’s real estate price in February 2025, China is seeing weakening in Apr and May, despite the yoy comparison still looks okay.

Key cities’ MoM existing home price index % change was -0.3% and -0.7% in Apr and May 2025.

The yoy comparison shows decline of less than 2% – existing home price index is only down 1.8% and down 1.3% in Apr and May 2025.

VC investing and HF investing

I have worked in both industries, venture capital and hedge fund.

I found that sometimes they can be exactly the opposite in how to make money.

While in venture capital, the deals that are more successful are those that are consensus. Capital pile in, and those with capital runs faster, adding to the moat.

While in hedge fund, the stocks that work better are those that are considered un-investable. When other holders cut loss / exit, it creates better risk reward profile and the perfect buying opportunity.

 

When we are saying China needs to boost household consumption

First of all, how large is the gap?

China’s household consumption is 39% of GDP, which is lower than EU average of 52%, 70% in the US, and below world’s average.

That’s about $2.3 trillion (13% x $17.8 trillion 2023 GDP).

Secondly, where are the areas to increase?

If look at GDP composition, China needs to increase in real estate services, healthcare, education, professional & technical services, information & communication, recreation & art, etc.

For real estate services, rent & management fees need to increase…

Healthcare and education is partially public spending. So need more gov budget allocation.

Services is essentially a problem of oversupply right now. Either needs to export or needs to increase demand.

Information & communication.. need to raise software prices.

Recreation & art needs more leisure time.

 

Complications in GDP and consumption calculation

In China, owners’ imputed rent at market rate was only adopted as of 2023 GDP figure – 2023 GDP upward, among which CNY 1.343 trillion (~1% of GDP) is due to market rent approach vs cost approach.

Some public/government sponsored consumption are not counted as household consumption, such as public schools, healthcare etc. Therefore the split will make household % lower, but this won’t change total GDP figure. These are both valued on cost basis in China and EU.

Investing in China: news are not news

If you hear a piece of “news” from China’s mainstream media, that’s not the news anymore. Normally, this “news” can be seen from multiple official outlets in China in similar or even the same words.

Therefore, you can trade on the news anyway; you should assume market has already priced this information.

The reason is that nowadays information transmits super efficiently in China, so little people would be left behind without the exposure to those mainstream “news”. Thus, there is no one you can have information edge over, especially in the market.

Then where/how to get information edge?

1/ by double checking the news with resourceful people. Context will matter a lot and they can help you understand for example whether a change is big / serious or superficial / repetitive.

2/ read the full documents; gather any information that is shortened or simplified in the news

3/ focus on news that is not repeated in other mainstream medias

4/ compare with previously similar events – look for anything that is more or less than before; in other words, result is not important, the difference matters.

 

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See others posts

Investing in China: regulation and justice

Investing in China: common fallacy