China’s Over-Invoicing of HK Imports Slows; HKDJPY Down Almost One Percent in Risk-Off Trade

by on May 7, 2014 12:25 am BST

China has long been guilty of falsifying economic data in order to lead on stronger than expected growth over the last several years. One of the biggest culprits has been Chinese-Hong Kong export figures, which has had huge discrepancies brought to light. In order to boost export numbers, investors would “sneak” capital into the country that was disguised as export earnings. Companies would even have false invoices with doctored numbers. This would allow the capital to comeback onshore and circumvent China’s capital controls. The Chinese government is cracking down on some shenanigans on its path to legitimate free-market economy, but it is still a long ways away.

Chinese-Hong Kong export data still suggests that there is a high level of erroneous figures. George Xu, an economist at BBVA in Hong Kong, said “a narrower gap between China-HK trade balances suggests that the amount of hot money entering the mainland via over-invoicing exports has been efficiently cracked down during the past few months.”

The Hong Kong dollar fell today against the yen on a risk-trade following a 1.28 percent drop in the Hang Seng Index. The yen has seen a lot of demand with global equities not finding any significant catalyst to move higher. Down .86 percent, the HKDJPY will likely retest the 30-day low of 13.0633. The pair could hold support at 13.0857, but a potential pullback could be capped at 13.1097. A close above this support level could open up a broader retracement to 13.1261. However, the fact that market participants are unsettled with risky assets, the yen will hold support.

Look for safe-haven asset reaction to tomorrow’s Congressional testimony by Federal Reserve chair Janet Yellen. If she reaffirms her stance on extended periods of near-zero interest rates, the dollar could fall further and strengthen the yen as a result. A push higher in the yen will test lows in HKDJPY by the end of the week.

4H Chart of HKDJPY

4H Chart of HKDJPY