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Strategies & Market Trends : Thai Funds
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To: Polartee who wrote (22)12/6/1997 2:18:00 PM
From: Polartee   of 107
 
Update on Malaysian short strategy:

In post #22 I described my Malaysian hedge strategy where I shorted Malaysia Fund at around a 26% premium to NAV and bought Malasian WEBS (EWM) which always trade at their NAV value like an open end mutual fund. Well MF has fallen from 10 to 8 and now is at a higher premium to NAV of 50.7%, its highest ever. It responded quite positively this week to the South Korean bailout and the positive move on Wall St. helped too. EWM has gone down from 7.375 where I bought to 5.375. I used an equal number of shares in both positions so I'm at breakeven on this hedged position.

Why did I use the same number of shares on each side of this position? Why didn't I take an equal value position in both? Well, I adjusted the number of WEB shares so that at my target discount of 10% to NAV on MF, my gain on the total position would be the same whether the Malaysian market went up or down at that discount. When (if) MF trades at a 10% discount I'll close out the position to lock in the profit.

In any event, I increased this position last Monday/ Tuesday when MF was at a 30% premium. It's clearly an even better bet now that MF is at 50.7% premium to NAV. I'll try to short more next week but the shares are in very short supply (no pun intended). Because they are so hard to get in order to short, that may be one reason why they are at a premium to NAV. Also, the Asian investors who tend to buy these are said to be long term investors and may not be holding their shares at American brokers who could lend them out for shorting.

John
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