After the Nikkei and yen have gone haywire (and we don’t even have an opening on Japanese markets yet, stock market numbers are all futures!) I thought it might be helpful to look over at least a little bit of data management I did over on the Hang Seng Index response to monetary base data. After all I have a pretty nice-looking chart over the HSI to the total monetary base. Here is what that chart looks like when taking the logarithmic change of the monetary base on the x-axis, and the HSI performance relative the model, also in log-change, on the y-axis:
The red box identifies the ±2% monetary-base change cluster, and the yellow box identifies the > 2% MB change cluster. In the red cluster, we get relatively symmetrical spreads on both sides of model over/under performance (bias towards the downside by 2%), but the yellow cluster is almost all positive! Monetary base goes up means that the HSI becomes higher-valued relative the monetary base!
To that end, HKMA data today indicates that the TMB increased by about 0.2% today (still a 20-day decrease by about 0.2%) and that there was a roughly HK$1 billion increase in NBFI liquidity. NBFI liquidity is still below HK$80 billion, so I don’t expect any particularly vigorous draw-out on the HSI unless there is a more concerted move past HK$81-82 billion, showing that we have a current bottom in place at HK$79 billion. Given that markets globally are on the upswing, and that Hong Kong will be particularly well-suited to draw benefits from the GPIF’s rebalancing and those looking to front-run it, I don’t think being net short the HSI at the moment is a particularly smart idea… Add on to this the effects of the Hong Kong – Shanghai Stock Connect and an extra HK$ 1 billion seems less important all of a sudden.