HKMA Intervened Second Time to Defend HK Dollar Peg, Mainland Investment In Hong Kong Stocks Jumped to New High

Li Chen
02 Jul, 2025
Hong Kong

Chinese stocks lacked direction on Wednesday, and investors stayed on the sidelines amid uncertainties linked to the international trade growth outlook. 

The Hang Seng index edged up 0.7%, and the CSI 300 index wavered around the flatline. 

China stocks have rebounded over the last eight weeks and recovered from sharp losses in April, as the worries of sky-high U.S. trade tariffs eased. 

Despite the easing of tensions, the U.S. tariffs are expected to remain near 10%, and Chinese companies are likely to face additional restrictions on importing advanced chips. 

Moreover, Chinese companies are accelerating the expansion of their operations in Vietnam, Thailand, Malaysia, Mexico, and Hungary. 

The Hong Kong dollar faced selling pressure for the second week in a row, forcing the Hong Kong Monetary Authority to intervene for the second time. 

The rate differential of as much as 300 basis points is driving the carry trade, where investors borrow in the Hong Kong dollar and reinvest the proceeds in the U.S. dollar. 

The HKMA sold US $2.55 billion and purchased the equivalent of HK $20.02 billion at an average price of HK $7.85.

On Jun 26, the monetary authority sold US $1.2 billion to buy HK $9.42 billion to defend the currency peg, set in a narrow band between HK $7.75 and HK $7.85.

Mainland investors continue to pour funds into the Hong Kong-listed stocks in the first half of 2025. 

The southbound fund flows on the decade-old Stock Connect link soared 90% from a year ago to HK $731.2 billion, or US $93 billion, and are approaching the record HK $808 billion of investment flows in 2024. 

The steady flow of funds is driven by the increase in liquidity on the mainland and investors chasing Internet-driven stocks listed on the Hong Kong Stock Exchange. 

 

China Indexes and Stocks 

The Hang Seng index edged higher 0.7% to 24,237.69, and the mainland-focused CSI 300 index edged up 0.03% to 3,945.64. 

The Hong Kong-based property stocks traded sideways amid worries of a liquidity crunch and a slight increase in mortgage rates after the HKMA's currency intervention. 

Sun Hung Kai Properties Ltd. edged up 2.6% to HK $92.40, Henderson Land Development jumped 5.2% to HK $28.90, and Longfor Group Holdings gained 3.5% to HK $9.59. 

China Construction Bank added 2.9% to HK $8.15, Bank of China increased 1.9% to HK $4.64, and HSBC Holdings plc decreased 0.4% to HK $94.60.