HK monetary authority warns of hedge funds operation

Although the monetary and financial systems of Hong Kong appear robust, Chief Executive of Hong Kong Monetary Authority Joseph Yam said the only area which needs to be alert to is the operation of hedge funds.

"There continues to be a serious lack of transparency in what they do, how they do it and how leveraged they are. And there probably are funds of these hedge funds that may also be highly leveraged and as opaque," Yam said in his latest viewpoint column published Thursday on the authority's website.

He said there has been considerable volatility in the past few weeks in financial markets worldwide, as the focus has sharpened on the confluence of risks arising from a number of developments.

These include the transition of monetary policies to more neutral settings, high prices of oil and other commodities, persistent global imbalances, and high levels of household indebtedness in some countries.

He said volatility is an inevitable feature of financial markets with liquidity, particularly those of an international financial center.

Although volatility is inevitable, Yam said, the regulators, the intermediaries and the investors have to learn to live with it and make sure their respective interests are well protected.

There is no clear information on these hedge funds or on their activities, and therefore no mechanism for close monitoring, Yam noted.

He urged people who deal with them, "in particular the lending institutions providing the leveraged funding, continue to exercise the counter-party discipline that we have been promoting since our last encounter with the so-called macro hedge funds."

Source: Xinhua