HK Dollar ETF

[comintel]

Quote from econometrics:

so any ideas about going long the HKD spot? instead of holding cash of cos.

Interactive Brokers, at least, treats this as essentially the *same thing* as holding cash. Their accounts are inherently multi-currency accounts and you can switch cash around among currencies without using much if any margin.

You can put on a short USD.HKD position of any size.

To the extent you have cash in your account, it will be used to satisfy the position.

To the extent the position you put on exceeds the cash in your account, it is a leveraged forex position that will roll over perpetually and requires small interest payments.

You can specify whether you want it shown to you as a cash conversion or as a forex position, but this is only labeling and has no effect on anything.

I believe that is the correct approach but other brokers may book-keep it differently.

I do have this position on as I also expect a revaluation of HKD against the USD. I have been advocating this trade for a year.

However I do not like the interest costs and am going to take a different approach which I will outline in another post.

It could take years before the revaluation occurs.

 

[JSHINV]

Quote from econometrics:

i wanna make a bet on the HKD de-pegging and appreciating against the USD.
Instead of buying physical HKD, do you know any ways to make the bet?

I am aware that there is a Barclays ETN linked to a basket of pegged FX, but i just wanna do the HKD.

Thanks.

The simplest way is long HKD/USD. Could be a long wait though. But given the debt ceiling crisis - who knows. I'd play it as a swing trade (I am not going to play it), place the trade, see what happens in the next few weeks. If it's business as usual, you may be waiting for years and I'd close it out. I wouldn't go with an ETF, just simply HKD/USD.

 

[DelayNoMore]

I am an Australian working for an Australian company based in HK and being paid in USD. Since arriving in HK the AUD has appreciated from approx 0.75. Sending money home hurts...

My firm has decided to restructure the salaries of my role so that they are equal in the APAC region, so I am assuming it will be based on the AUD (most staff in Australia) and paid in either USD or HKD (which will be my decision).

My questions are:
1. Which would be the better currency to be paid?
2. What can be put into place to protect me and the frequency it should be adjusted?

Cheers
DNM

 

[comintel]

Quote from DelayNoMore:

I am an Australian working for an Australian company based in HK and being paid in USD. Since arriving in HK the AUD has appreciated from approx 0.75. Sending money home hurts...

My firm has decided to restructure the salaries of my role so that they are equal in the APAC region, so I am assuming it will be based on the AUD (most staff in Australia) and paid in either USD or HKD (which will be my decision).

My questions are:
1. Which would be the better currency to be paid?
2. What can be put into place to protect me and the frequency it should be adjusted?

Cheers
DNM

It does not matter much because USD and HKD have been pegged for decades.

Eventually the peg will break and probably HKD will be worth more so, if adjustments are not instantaneous, you might be ahead in HKD while adjustments were pending.

Also if you are in HK then probably HKD will be more convenient. So I would go with HKD.

Also try to find out the actual amounts in each currency to see that they are not biasing them one way or the other.

Most likely the conversion will be done by a Bank and be continually adjusted though.... the Banks have services to do that for employers...

 

[melo]

Quote from comintel:


Eventually the peg will break and probably HKD will be worth more so, if adjustments are not instantaneous, you might be ahead in HKD while adjustments were pending.

Also if you are in HK then probably HKD will be more convenient. So I would go with HKD.

Eventually - and that won't be any time soon - the peg will change to something else. Break, no (if the implication is break under pressure). Too much in reserve to resist that. More likely is a change in a highly-managed fashion to a slightly more flexible system, e.g. such as Singapore's.

In which case, one would expect the HKD to gain vs. the USD in all present evaluations. Convenience for the salary earner is also underscored by the presumed b/a spread costs of converting a USD income into HKD cash.

 

[comintel]

Quote from melo:

Eventually - and that won't be any time soon - the peg will change to something else. Break, no (if the implication is break under pressure).

It is not under pressure at the moment and I was not necessarily implying that.

If you break a pattern or routine it just means you discontinue it.

It's just a quibble in any case because the effect is the same no matter why it occurs.

 

[glenviewcap]

the economic fundamentals do not bold well for the current usd peg, but expectation management and HKMA creditability are very important too..we will have to see how it plays out

 

[dunleggin]

Politics (China) will come into play just as much as the fundies in any future decision.

The debt/GDP ratio here is around 0.6%. HK govie debt is rated AAA.

HK's reserves are solid; China's are off the map.

Peg breaking? Move along, nothing to see here.

 

[glenviewcap]

Quote from comintel:

Interactive Brokers, at least, treats this as essentially the *same thing* as holding cash. Their accounts are inherently multi-currency accounts and you can switch cash around among currencies without using much if any margin.

You can put on a short USD.HKD position of any size.

To the extent you have cash in your account, it will be used to satisfy the position.

To the extent the position you put on exceeds the cash in your account, it is a leveraged forex position that will roll over perpetually and requires small interest payments.

You can specify whether you want it shown to you as a cash conversion or as a forex position, but this is only labeling and has no effect on anything.

I believe that is the correct approach but other brokers may book-keep it differently.

I do have this position on as I also expect a revaluation of HKD against the USD. I have been advocating this trade for a year.

However I do not like the interest costs and am going to take a different approach which I will outline in another post.

It could take years before the revaluation occurs.

Have you thought about other methods to do the trade using more leveraged? I understand that the interest costs eat up. Are there any ways to take a more leveraged position ?

 

[comintel]

Quote from glenviewcap:

Have you thought about other methods to do the trade using more leveraged? I understand that the interest costs eat up. Are there any ways to take a more leveraged position ?

There is indeed an interest cost, although there really should not be one because interest rates are the same in both currencies.

The reason there is one is that most brokers add and subtract 25 to 50 basis points on each side as an added charge in calculating the swap rate. If one had access to true interbank forwards or options, or even to institutional swap rates, this cost would be much reduced or negligible.

Islamic forex brokers may not charge it. Some charge substitute fees but some do not.

Another way may be to arbitrage stock index futures that are quoted in different currencies. Some are priced as US$10 times the nominal index of say a Chinese stock index. If one can then find another future that is quote as say HKD100 times a similar index, then one could arbitrage the two to create an implicit currency trade. Futures have very low margin and no interest carry. However I cannot quite find a pair that I can do this with, and some are not available to U.S. residents.

For now I am just doing a forex transaction.

Note the USD.HKD is approaching multi-year highs today as the dollar soars on stock market crash fears, so now is an excellent time to put on the trade. I expect that it will come off these (USD) highs once the stock market settles down.