A new possibility arises after yesterday's 2nd HKMA intervention.....
The HK Monetary Authority purchased mass quantities of HS index futures and index components in a second attempt to squeeze out speculators. The HKMA said that they have nothing against the hedge funds shorting the Hang Seng, but are retaliating against the attacks on the HK$, which hedgies were doing in a strategy which consists of shorting HS index futures and attacking the HK$. The short futures netted big gains when money market interest rates soared as the HK Gov. defended the currency, as higher interest rates make equities unattractive. This hedge fund strategy worked well over the last month or so, but now the HKMA say no more as the rate rises are hurting property developers, HK's bread & butta'.
So why are they trying to fight off the specs now, instead of 10,000 or even 5,000 points ago? What's up their sleeves? Here's the possibility, though far-fetched:
HK may be planning to release the HK$ from the peg any day, and thus in an effort to buoy confidence among it's citizens they've been propping up the Hang Seng last few sessions. This would be solely to cushion the HS against a crash after the peg is released, as fools that are still long rush to sell, though the devaluation seems to be somewhat already priced in because there are very few fools left. I fell that any additional interventions this week make this scenario increasingly likely. |
