Hong Kong will flush out the foam and fizz of the 1990s bubble either by slow deflation of assets over a long time, or by rapid devaluation of currency over a moment.
"Speculators make small wagers on end to peg"
biz.scmp.com
Tuesday, September 17, 2002
Speculators make small wagers on end to peg
LOUIS BECKERLING
Speculators yesterday continued placing small bets on the unlikely prospect of a sudden end to Hong Kong's 19-year-old currency peg.
The result was a fractional increase in forward currency rates, up 100 pips for one-year forwards (from HK$1.799 to HK$1.800), and a further tweak to benchmark three-month Hong Kong interbank offered rate, fixed at 1.899 per cent from 1.875 per cent previously.
But analysts, in turn, were betting that the speculators would lose their wagers, and forecast that both forward currency and short-term interest rates would settle back once the latest flurry of rumours subsided.
"There really is no substance to the rumours, and once they dissipate, rates will return to where they were," HSBC Hong Kong economist George Leung said yesterday.
HSBC researchers believe United States interest rates could decline by a further 100 basis points this year, putting substantial downward pressure on Hong Kong rates through the currency peg.
"I don't hold this view [of an end to the peg]," said Andy Xie Guozhong, managing director and Asia-Pacific chief economist at Morgan Stanley.
"The Hong Kong government is not thinking about it, and even if it were, it would never do it under market pressure."
DBS currency trading head Tommy Ong said talk of an attack on the peg was overblown and missed the real reason for the modest increase in forward exchange rates.
"I don't even believe there is an attack on the peg. All Asian currencies have been under pressure since last Friday and this is mainly a reflection of the markets' downgrading of the Asian economies," said Mr Ong.
The first trigger to the latest round of speculation about the currency peg came last week in a research report from Bank of China International (BOCI), which said the peg was holding back economic restructuring and integration of the Hong Kong economy with the mainland.
Critics responded with suggestions that BOCI might have been deliberately used to plant this view into the market.
BOCI responded yesterday with a press statement that it prided itself on the independence and objectivity of its research.
"BOCI Research is the research arm of the BOC International Group. Research reports prepared are based on the individual professional judgment of its analysts and opinions expressed are made in accordance with established industry standards.
"They do not represent the official view of BOC International or any other institution," the statement said.
But an additional trigger to the speculation came at the weekend from reports of further price wars in the Hong Kong property market and signals that property prices could fall further. This led to a big fall in property share prices on the Hong Kong stock market yesterday.
"That means more middle-class families will be facing negative wealth, which is politically a problem for the government," said Mr Xie.
"The speculators believe this may increase pressure on the government to devalue the currency. But I don't hold this view."
Rates were just marginally higher and when the rumours subsided they would return to where they were before the latest round of speculation began, Mr Leung said. |
