HKMA chief eyes second wave to financial downturn

Updated: 2009-02-03 07:02

By Kwong Man-ki(HK Edition)

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HONG KONG: Financial protectionism may be one of three signs of the second wave of the global financial turmoil, the head of Hong Kong's central bank warned yesterday.

"I wish that it (financial protectionism) wouldn't happen, but there is a risk that it may happen, given that the global economy is experiencing tremendous difficulties," Hong Kong Monetary Authority Chief Executive Joseph Yam said.

With a rise in financial protectionism, Yam said he worries that investors may refuse to buy financial instruments issued by other countries.

"People may stop buying US treasuries," he told lawmakers on a financial affairs panel yesterday.

He warned there is one bubble that has yet to burst in the global financial market: the US treasury market. The foreign exchange fund recorded a return from bonds of HK$58 billion, but Yam said the gains may not be sustainable, as he said the bond prices have fallen by 5 percent recently.

However, Yam believes that Hong Kong can cope with the possible development with its sound financial situation. He noted that the value of Hong Kong's external assets is about two to three times the city's gross domestic product (GDP).

"I think the effects on Hong Kong will be much less than on other economies," Yam said. "I am actually quite optimistic about Hong Kong's financial system."

Noting the two remaining aspects of the second wave, Yam said companies are likely to report worse-than-expected results, as they were overwhelmed by the subprime and credit crisis. Additionally, he warns about the vicious cycle from the credit crunch and economic downturn.

Citing market estimates, Yam said companies may struggle to refinance debt, with more than HK$100 billion in syndicated loans falling due this year.

He said foreign banks will likely be cautious in lending due to the global credit crisis, adding that some banks may need to withdraw their capital from Hong Kong in order to help their parent companies. But he thinks companies will be able to seek loans from local banks.

The Hong Kong government has introduced measures to help ease credit and support small and medium-sized businesses. Lawmakers asked if the government can provide loans to the companies. Yam responded: "Should the government get involved? We'll keep an open mind".

Yam also told lawmakers that he is confident the mainland can achieve 8 percent economic growth this year. "It is easier for a socialist economy to achieve targeted growth rates," he said.

(HK Edition 02/03/2009 page6)