Monetary Authority Chief Executive Joseph Yam says macro adjustment and control measures on the Mainland and the upward trend of the renminbi exchange rate will influence short-term market sentiment.

"This may either dampen or exacerbate financial market volatility, but hopefully not enough to derail what must be quite clear, long-term trends of significant gains supported by sustainable and rapid economic growth, continuing reform and liberalisation on the Mainland, and the promising opportunities for Hong Kong as an international financial centre. Please make sure you are not thrown off track by short-term bumps in this interesting ride."

In his Viewpoint column published on the authority's website today, Mr Yam cautioned that while Hong Kong has weathered financial market volatility so far this year, it continues to affect both global and regional financial markets and its causes are complex.

Volatility probable

Some of the strong forces identified at the turn of the year are still around, such as global current account imbalances, different interest rate levels, inflation and high energy prices. Noting there are tremendous amounts of liquidity in financial markets held by entities that behave unpredictably, operating in derivative markets of inadequate transparency, Mr Yam said these entities are ultra-sensitive to small shifts in yields, which makes continued financial market volatility in the months to come seem probable.

"I would like to remind those paying close attention to interest rates in Hong Kong of what I have said many times in the past few months: we are more likely to see a plateau, possibly with some ups and downs reflecting fine-tuning efforts and short-term market anomalies, than a peak," he said.

"In any case, it is not really in the long-term interests of anybody to see US interest rates having to come down sharply, because the underlying circumstances, in terms of concerns over the economy or financial stability, leading to such a decision would clearly be quite unpleasant globally."