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Strategies & Market Trends : Asia Forum
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To: Paul Berliner who wrote (5668)8/20/1998 11:48:00 AM
From: Robert Douglas  Read Replies (1) of 9980
 
Paul,

I'm a bit puzzled by a statement you made in your primer on currencies. You made this statement on reasons why the Hong Kong dollar is overvalued.

2. A devaluation would benefit HK because domestic goods prices there are way too high.

Don't you have that backwards? Domestic goods would certainly not get cheaper if the $HK fell, just as goods produced in the US have not become more expensive to Americans with the appreciation in the dollar. If anything domestically produced goods would become more expensive for Hong Kong residents since Hong Kong imports so many of the raw materials that are used for these products that are produced and consumed locally. This is one reason that I predict that HK will not devalue, because the net benefit would be small due to the reliance on imported raw materials.

Perhaps you meant to say that their exports would be cheaper because of the cheaper currency? This is certainly true, but would the resulting inflation and possible loss of Hong Kong's status as financial capital of Asia be worth it? I believe that Hong Kong values this financial stability more than it values a "quick fix" boost in exports. So while I believe Hong Kong is suffering, they will hold on, and since I believe the next move for the $US is down I think that relief is on the way.

**Side bet.** You are on record saying that Hong Kong, Taiwan and Argentina will all devalue. I'll take the other side of each of those bets. How does one cyber-lunch at the SI bar and grill sound? <G>

-Robert

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