Rethinking about capital flow|Chik Fung-sang

Published (HKT): 2021.04.20 09:47

Dr. Hans Rosling, an authority on public health, pointed out in his work Factfullness that most people are ignorant of what is happening around the world because they do not update what they know. Our knowledge came from our teachers, the knowledge of whom came from what they learned at school in their age!

The issue of outdated knowledge in the realm of finance is just as serious. When a large number of friends of mine started to open offshore accounts last year, I began to delve into what exactly “capital flow” is. Why have there been so many people moving their money away so that even Singapore and Canada have a record of a large amount of deposits flowing in from Hong Kong, yet Hong Kong Monetary Authority still said no capital outflow found? Of course, it is easy for anyone to stop thinking about it by just putting forward a saying that “they lie”. Let’s be reasonable and look at the HKD deposits and the aggregate balance. Strangely enough, we will find that there is really money inflow from overseas.

I opine the crux of the matter is that with capitals highly globalized, it is hardly possible to trace where they are from. Is a Hongkonger who converts HKD to GBP through his account at the lion bank deemed as someone moving away his capital? No, because the amount of GBP is still deposited at the lion bank. Is opening a GBP account at the lion bank in the UK reckoned moving away one’s capital from Hong Kong? I am convinced that on personal level, it is, but from the perspective of the lion bank, the amount “withdrawn” by the client is still circulating within the banking system, awaiting other usages.

Simply put, if there is still demand for HKD in the market, all commercial banks will preserve the HKD “moved away” by individuals until they can take in no more, because of the supply of HKD greater than the demand for it. The Monetary Authority then has to buy in HKD to decrease the aggregate balance and supply of it. Up till that moment, that is what can be seen as genuine “moving away of capital”.

When I joined the workforce after graduation, I was reminded by predecessors about paying heed to news about capital flows on which I could rely to make forecasts about stock markets(outflow of capital means a decline in a stock market). In those years, there was a reason for people having to fly out of Hong Kong to open an offshore account. But nowadays, it is worth rethinking about whether capital flows are a leading or lagging indicator.

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