Hong Kong rates hit 2008 highs, dollar rallies before jumbo InBev IPO

The Hong Kong Interbank Offered Rate (HIBOR) rose across the curve on Thursday, with investors scrambling for cash ahead of the world’s biggest initial public offering of the year at a time of tight liquidity in the domestic market.

Brewer Anheuser-Busch InBev (AB InBev) is seeking to raise up to $9.8 billion by listing its Asia-Pacific business in Hong Kong this month.

On Thursday, the one-month and two-week tenors shot up to 2.99 per cent and 3.53 per cent, respectively, their highest since October 2008, while two-month and three-month HIBOR reached their highest levels since November that year.

New York-listed internet giant Alibaba is also hoping to raise up to $20 billion in Hong Kong’s stock market this year, which would be the largest secondary listing globally in seven years. “We haven’t seen such a large IPO for a while, and it is happening during the dividend season when liquidity is usually tight,” said Carie Li, an economist at OCBC Wing Hang Bank, commenting on the AB InBev listing.

Analysts from Bank of America Merrill Lynch estimated in May that Hong Kong-listed Chinese companies will need to pay $55 billion of dividends this year, mostly in June and July.

HIBOR’s climb lifted the Hong Kong dollar to its strongest since May 2017. The currency was seen at 7.7893 per dollar, up 0.1 per cent on the day. It is pegged to the US dollar at a tight range of 7.75 to 7.85.

On top of equity market demand, the strength of the local dollar reflects a massive unwinding of the carry trade said Hao Zhou, a forex analyst at Com­m­e­rzbank in Singapore. A previously wide spread between US and Hong Kong rates led investors to borrow Hong Kong dollars cheaply to buy higher-yielding US dollar assets in a ‘carry trade’, spurring capital outflows and pressure on the local currency.

But that gap by-and-large closed in June. The Hong Kong dollar rose 0.33 per cent against the greenback that month, its largest monthly gains since September 2008.