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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: elmatador who wrote (32115)	4/22/2003 9:18:39 PM
From: TobagoJack	Read Replies (3) of 74559

Elmat, <<HK dollar>> My expected attack Message 18827388 is starting ... biz.scmp.com Wednesday, April 23, 2003 HK$ forwards surge on Sars fears JON OGDEN Hong Kong dollar forwards surged to a five-month high yesterday as investors factored in two new economic worries relating to the atypical pneumonia outbreak. The premium on one-year forwards jumped to as high as 320 pips over the spot exchange rate between Hong Kong dollars and US dollars, up from 220 pips on Thursday. A pip is equal to one-hundredth of one cent. Profit-taking cut the premium on the contracts back to 300 pips in late afternoon trading, DBS Bank head of sales for Greater China treasury and markets Andrew Fung Hau-chung said. "Over the weekend the [widening] outbreak of Sars in China has given speculators a trigger point," he said. Possible bailout measures for the struggling economy were seen as undermining commitments to tackle Hong Kong's ballooning budget deficit, expected to show HK$75 billion for the year ending March 31. Analysts, equity fund managers and interbank traders said although hedge funds were seen taking positions in the forwards market, yesterday's surge should not be seen as the start of an attack on the Hong Kong dollar peg. "The forwards are a measure of the risk premium on Hong Kong. It is very low in absolute terms but in relative terms it is picking up," JP Morgan regional currency strategist James Malcolm said. The growing economic fall-out from Sars was "dragging on everybody's nerves", said Credit Lyonnais' Frederic Laine. But the rising premium on Hong Kong dollar forwards could be quickly unwound if there were signs that the disease was being brought under control, he said. Non-deliverable forward yuan contracts were also active yesterday. The discount of the one-year forward rate to the spot rate tumbled from 400 pips to just 100 pips as investors figured the grim news on China's growing Sars problem meant there was little chance the trading band for the yuan would widen in the next 12 months. The discount on one-year non-deliverable yuan forwards hit a record 1,450 pips over the spot rate in January as investors bet that pressure from countries such as the United States and Japan would cause a widening of the currency's trading band.

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