Ron, a country's currency reflects it economic strength or weakness, and possibly future trends in such factors. When HK pegs its currency to the US it makes the intrinsic assumption that both economies have similar strength. Over short period of times, that may be correct, but over the last few years, the economy of HK may be weakening (relative to that of the US), at least this is what the speculators are betting on. What these speculators are seeing is not only the impact of the Rim's malaise, but also the fact that HK had a real estate boom financed with debt, and that a large chunk of this debt may not be repaid, or will have to be written off. That will have an impact of setting back HK's economy (a bunch of assets written off, lower economic activity etc.) and thus the speculators are betting that a new "peg" will eventually be established, so that HK can once more be competitive (with a devalued currency that reflects the readjustment of their "asset base" to "international standards").
Zeev |
