Hong Kong M1 Money Supply Falls 3.1% On Month In July

Aug 31, 2007 - Hong Kong's money supply as measured by M1 declined in July from June, as some investors in the stock market sold their shares on concerns about the subprime mortgage problem in the US, said Daniel Chan, senior investment strategist at DBS Bank.

"M1 usually reflects the performance of the stock market," Chan said. "If the market is performing well, you will see an increase in M1, which is a measure of short-term liquidity."

M1 refers to total currency in circulation, or those held by the public plus demand deposits.

Hong Kong's M1 money supply dropped by a seasonally adjusted 3.1% in July from the previous month, the Hong Kong Monetary Authority or HKMA said Friday.

Compared to the previous year, M1 money supply increased 12.1% in July.

The official data showed that the unadjusted M2 and M3 in Hong Kong dollar terms both declined by 5.5% on a month-on-month basis.

"If this trend continues, that both M2 and M3 will decline, then we might see a slowdown in the economy," Chan said.

M2 is M1 plus savings and time deposits and negotiable certificates of deposits.

M3, the broadest measure of money supply, includes M2 plus security deposits with authorized banks and negotiable certificates of deposit.

A contraction in M2 and M3 means that companies and individuals are not borrowing to fund investment and consumption, Chan said.

Total deposits with authorized financial institutions slid 2.0% in July.

Hong Kong dollar deposits dropped 5.9%, while foreign currency deposits rose 2.8%, the report said.

On a year-on-year comparison, Hong Kong dollar M2 and M3 grew by 20.2% and 20.1% respectively.

In July, total loans and advances declined 4.8%, triggered by a fall in Hong Kong dollar loans exceeding the increase in foreign currency loans. Domestic loans fell 6.0%, whereas loans outside Hong Kong grew by 2.2%.