'Mini' liquidity upturn will be short-lived

Due to upcoming US Fed initiatives.

While fundamentals have improved a bit since 2Q14, specifically concerning Chinese policy, the biggest headwind clouding the outlook on Hong Kong liquidity down the road remain unchanged.

According to a research note from UBS, it pointed this headwind as the tightening in US monetary policy.

With the Fed still on course to end QE3 in late 2014 and start hiking interest rates mid next year, UBS thinks the current 'mini' liquidity upturn should prove short-lived

Here's more from UBS:

What the numbers say: The HKD weakened to 7.63 towards late September, reflecting uncertainties surrounding the pro-democracy movements and expectations for US rates hikes.

What they mean: Hong Kong’s currency is linked to the USD and thus short-term interest rates are mainly determined by US Fed policy, expected return on investing in Hong Kong assets, and exchange rate expectations.

Shifts in expectations often do cause HIBOR to deviate from Libor, but as a general rule the relationship is very strong.

Interest rates are particularly important for Hong Kong given the importance of real estate and the fact that Hong Kong is a major financial centre.