Exchange rate turn may aid Hong Kong retailers

Hong Kong’s retail sales decline may have bottomed out.

And a leading factor in the downturn – the value of the Hong Kong dollar – may now bring a much-needed boost for Hong Kong retailers.

China’s central bank policy this year has been to peg the value of the yuan to the US dollar – the same currency the Hong Kong dollar is pegged to.

This means that since January, the yuan’s value relative to the Japanese yen has fallen 11.1 per cent, and to the Malaysian ringgit by 6.7 per cent.

Last year the yuan fell against the Hong Kong dollar, making alternative destinations more attractive for cashed up Mainland Chinese shoppers who chose Japan, Korea or Europe instead, possible due to relaxed visa conditions.

Now, the value balance is shifting back to Hong Kong, albeit there has been negligible difference in the cross rate between the Hong Kong and mainland currencies. The yuan has fallen just 0.1 per cent against the US currency this year, and risen 0.1 per cent against the Hong Kong dollar.

“It will help perhaps put a floor in terms of retail sales,” Sandy Mehta, CEOof Hong Kong-based Value Investment Principals said in an interview with Bloomberg. “The currency by itself may not lead to a recovery, but it will surely help things bottom out.”

Hong Kong retail sales fell 12.5 per cent in the first quarter of 2016, largely due to an ongoing decline in visitor arrivals.