Negative rates, treasuries sell-off feared

Hong Kong Exchanges and Clearing (0388) managing director and chief China economist Ba Shusong yesterday warned that if central banks around the world run out of monetary firepower before a Covid-19 vaccine is developed, the United States might be forced to take interest rates negative.

This would in turn trigger a series of negative impacts such as a sell-off of US treasury securities by Japan and Europe, he said.

Speaking at the HKEX Commodities Forum yesterday, Ba said unlimited quantitative easing by central banks have driven up asset prices and debt levels, while the overweight in US dollar-denominated assets might overextend public credit.

Given Covid-19 uncertainties, with many companies failing to restart businesses and some falling into bankruptcies, he predicted that in the worst-case scenario, low economic growth will appear alongside the debt crisis, and global economic recovery is likely to be "W-shaped" or "L-shaped."

He said that could threaten the dominant role of the US dollar in the future, but so far there is no other alternative to the greenback.

Ba added that the commodities market had experienced dramatic fluctuations amid economic corrections or shocks in the past, which brings challenges to governments and investors. And amid the pandemic, rising distrust among governments will make it difficult to return to "win-win" globalization, he said.

Ba projects a diversification of the global supply chain. He said companies are considering reallocating supply chains due to the rise in protectionism, and he expects some strategic industries will return to home and trade control might be extended to daily necessities, while regional cooperation will be strengthened.

He believes China's export will recover despite falling in the short term due to the pandemic, adding that the property market has shown signs of improvement as the domestic epidemic was controlled, which will support demand for raw materials.

Ba said the local bourse operator launched US dollar-denominated ore futures three years ago, which is trading through digital platforms, and it's important to provide efficient and transparent digital trading platforms to market participants.