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While the HKD market has been choppy......>

HONG KONG
HONG KONG: While the HKD market has been choppy given sporadic Chinese/Hong Kong
market holidays, demand for HKD downside protection via options has picked up.
Since the beginning of September, close to $2 in USD/HKD calls have traded for
every $1 in puts, with call strikes at and above the 7.85 level drawing
particular demand. Close to $4.5bln in 7.85+ vanilla/NDO call strikes have
traded since the protests began. Whether the trades are positioning for a break
of the peg or are merely looking for a vol pick-up remains to be seen, however.
-Further unrest over the weekend and throughout China's National Day holidays
has clearly unnerved domestic investors, which led to a response from the
country's Finance Secretary this weekend who stated the government is committed
to keeping the country free of capital and/or FX controls. The domestic market's
caution has been well reflected in USD/HKD NDF outrights, which continue to
creep higher. The 1m contract today hit the highest since early September. 
-Monday's market holiday kept onshore equity markets closed, but these are seen
reopening with losses Tuesday. The cash Hang Seng Index finished with losses of
just over 1% on Friday.

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