At the risk of repeating what others have already posted, if you think the peg is going to break on the downside, then the carry trade using HKD borrowed funds looks like a good bet ... assuming you can live with the risk that HIBOR/HKD Prime Lending Rates may spike as things unravel.
The Hong Kong dollars one-month interbank interest rate, known as Hibor, climbed 29 basis points to 2.42%, the highest level since October 2008. The jumping Hibor has helped narrow a discount to the borrowing costs on the greenback to the smallest since April.From Bloomberg...The Hong Kong dollar rallied as much as 0.12% to HK$7.8270 per greenback, its strongest since late December. Liquidity has been tightening in the city in recent days, with the one-month interbank borrowing cost jumping to the highest level in more than a decade Wednesday. Bears are also being squeezed by a surge in the cost of shorting the currency, as the local dollars 12-month forward points rise to the highest since January 2017.
HKD lowest is at 7.85 which will trigger the HKMA to buy HKD.
The recent incidence led to speculation that liquidity will be drained from hk market, i.e. the rich and scared will be drawing money away from hk and go to US/Switz/Singapore wherever else...
So when that happens, market foresee a drain of HKD.. then interest rate will go up..
that causes speculators that are betting on a weak depeg of HKD to cut loss and pushes further HKD strengthening..
so that's like what the market is speculating on the moves.. you definitely can find arguments against this. but the trader speculation, whether right or logical, are usually what drives the short term market and until it moves otherwise, will be deemed as the correct answer for now.
That said, the peg will go eventually and when it happens the impact will most likely be significant but an awful lot of money has been lost betting on when that outcome will occur over the years.
1. to break the peg requires alot of money and not easy to be successful. If I am not wrong for every hkd issued, HKMA has 0.125 USD sitting in its reserve to support it. so technically for one to short sell HKD to break HKMA is impossible. you need to borrow HKD to short and HKMA can always make it expensive for you to short the currency, VERY expensive. HKMA and PBOC will likely defend the peg and it is a symbol of strength and having it broken has too much implication this part of the world.
2. that doesn't say the Peg won't go away. at recent financial states the peg might not be that meaningful anymore since HK is rich and having a currency pegged to another sovereign doesn't make that much sense. sooner or later they will depeg it like you say, at least that would remove one channel speculators can attack the currency, and if they really want to peg they should peg it to CNY anyway.
1 and 2 are both likely to be true, question is when and under what circumstances.
since HKMA is rich enough, they will likely hold the peg if its under attack... so to have the peg taken away it should be a situation where it is HKMA's convenience to do it... e.g. if HKD strength is sufficient such that HKMA can gently remove the peg, maybe by repeatedly widening the range. It is also expected that HKMA will prepare the market for the removal of the peg eventually, then the impact will probably not be significant and just a BAU over the course of a weekend.
One thing I would add is that the tools which the HKMA can use to defend the peg and make it costly for short sellers to borrow include raising interest rates - they need to be a bit careful with that one given that most HKD mortgages are set at floating rates.