The Hong Kong dollar has steadily weakened this year - BBH

BBH Global Currency Strategy Team notes that the Hong Kong dollar has steadily weakened this year but there is no threat at all to the peg, which they expect to be maintained for the foreseeable future.  

Key quotes:

"USD/HKD last week traded at its highest level since February 2016.  It has since fallen back a bit, but to keep things in perspective, the current rate of 7.7820 remains well below the 7.8 peg rate.  The last time it was above the peg rate was in January 2016, when the pair traded as high as 7.83 as EM came under severe pressure.  As local interest rates spiked then, the pair quickly moved back below the 7.8 area."

"Hong Kong equities have done better after a poor 2016.  In 2016, MSCI Hong Kong was -2% vs. +7% for MSCI EM.  So far this year, MSCI Hong Kong is up 18% YTD and compares to up 15% YTD for MSCI EM.  This outperformance should continue, as our EM Equity model has Hong Kong at a VERY OVERWEIGHT position."  

"Hong Kong bonds have outperformed.  The yield on 10-year local currency government bonds is about -50 bp YTD.  This compares favorably to the best performers Brazil (-115 bp), Indonesia (-88 bp), Colombia (-87 bp), Turkey (-86 bp), and Russia (-77 bp bp).  With inflation likely to climb again, we think Hong Kong bonds will start underperforming."