Will Rising Chinese and Hong Kong Currencies Spur ETFs?

The Chinese yuan rose to the highest since the dollar peg was ended more than 2-years ago on speculation the Peoples Bank of China will again increase interest rates in an attempt to slow down its overheating economy. Barchart reports that the yuan rose to 7.4847, the highest since its revaluation in July 2005, as China's Q3 GDP rose +11.5% from a year earlier after expanding by +11.9% in Q2, the fastest pace in 12-years. Inflation in China rose to +6.2% in September, more than double the PBOC's target, and its stock market has almost quadrupled in value in the past year and the Shanghai Composite is up sixfold in the last two years. The PBOC is under increasing pressure to slow economic growth and curb asset bubbles plaguing its financial markets.

Meanwhile, Hong Kong's Hang Seng Index crashed through the 30,000 barrier as Hong Kong investors have been banking on a flow of billions of dollars of Chinese savings entering the stock market as Beijing gradually makes it easier for mainland investors to send money abroad.

The Hang Seng record close came after the territory’s monetary authority bought US dollars for the second time this week, as the Hong Kong dollar continued to rub up against the upper limit of its trading band.

Demand for the local currency, which is allowed to trade in a range of HK$7.75-HK$7.85 to the US dollar, is surging as capital flows into Hong Kong’s stock market. Market turnover reached HK$157.4bn ($20.2bn) on Friday. The Hong Kong Monetary Authority purchased $100m on Friday. But the HKMA said that this time banks had approached it to buy Hong Kong dollars.