Hong Kong is being swamped with hot money

From the FT: HK takes aggressive investment stance

Hong Kong has seen so much speculative inflows that it’s pursuing riskier investment. The Hong Kong Monetary Authority, that is the SAR’s defecto central bank, had upped downpayment requirement for mortgage earlier on in a bid to dampen the property market, to no avail of course. In fact, the chairman of Centaline, one of the largest property agent in town, has let slip that the banks are offering higher commission to the agents in an attempt to lure more business.

So what is HK to do? It had to live with 6 years of painful deflation after its last asset bubble burst in 1997. Would the ppl in charge be any smarter this time around? Adjusting its currency peg upwards by say 10% would be a good choice now, especially since its economy is 90% consumption and the HKD is 13% cheaper than the RMB after the later’s appreciation in 2005. Unfortunately, the HKD has become to many people a proxy for the RMB. As such any revaluation by the HKD will exert pressure on the RMB and is just not possible politically. But maybe there’s hope? What’s Timmy’s business in HK on his way to Beijing last week?