The chief executive of the Hong Kong Monetary Authority, Joseph Yam, has raised concerns over the trading practices of hedge funds on the Hong Kong markets, and has urged lending institutions to exercise caution when offering leverage to 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,” observed the HKMA chief in his weekly online column.
Mr Yam voiced suspicions that hedge funds made a significant contribution to recent market volatility, which saw the Hong Kong equity market swing by 10% in both directions within a matter of three weeks, as managers liquidated their positions en masse.
“There is no clear information on these funds or on their activities, and therefore no mechanism for close monitoring,” he continued, concluding:
“But I hope that those 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.”
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