Tom,
chicken little here reporting from the hen house.
months ago I started worrying about the market, mainly because I cannot rule a melt down style correction. Yesterday's reaction to Russia is totally uncalled for. The biggest economic bomb is about to explode in HK.
HKMA struggled to keep the HS index up there through August expirations (last night). Monday is WWIII (Sunday night). There is no sign that the shorts are throwing in the towel. Without the HKMA, there are no buyers. I have asked anyone who can remotely answer the question and receive no credible responses.
"What happens if HKMA fails?"
From SCMP
Friday August 28 1998
Soros fund joins bets
against HK$
SHEEL KOHLI in London and ENOCH YIU and agencies
Sources close to the Quantum Fund, the world's
best known hedge fund run by United States
financier George Soros, yesterday confirmed it
had made sizeable bets against the Hong Kong
dollar.
Traders said several other hedge funds - including
Julian Robertson's Tiger Fund and Louis Bacon's
Moore Capital - had also been active in Hong Kong
in recent weeks.
Unconfirmed rumours yesterday suggested Mr
Soros may be about to visit Hong Kong.
Hong Kong Monetary Authority chief executive
Joseph Yam Chi-kwong said he had not received a
request from Mr Soros for a meeting.
"I don't know whether he is in Hong Kong," he
said. "I don't think I would have time to meet him.
We do not have any plans to meet each other."
A government spokesman said he too knew of no
request from Mr Soros to meet Financial Secretary
Donald Tsang Yam-kuen or any other local
officials.
Mr Yam yesterday refused to say how much of the
Exchange Fund had been used to intervene in the
stock and futures markets, but said he expected
the foreign exchange reserves to be lower in
August as a result.
Yesterday prime brokers - traders from blue-chip
banks which specifically service large, highly
leveraged alternative investment clients - said the
recent pledge by Mr Tsang to "drive those
speculators out of the market" was being seen as a
virtual green light to bet against the dollar.
A trader at a key US bank said: "From an
investor's point of view, the calculation is simple.
Who has got more funds at their disposal? The
market, or the Hong Kong Government."
Funds were said to be making large selling bets on
the Hong Kong dollar forwards, and simultaneously
short-selling the Hang Seng Index.
Quantum Fund manager Stanley Druckenmiller
indicated the Government could only lose, as basic
economic fundamentals implied either higher
interest rates or a lower valuation for the Hong
Kong dollar.
"I'm baffled at what they are doing," he said in an
interview with CNBC. "But if they think the
fundamentals in their area have turned, the gamble
they are doing here will probably pay off and they
will have won the war, they're saying, over
speculators."
He said the Quantum Fund had committed a
mixture of client funds and proprietary money
against Hong Kong as it believed the currency and
stock market were still high.
"If they're [the Government] wrong on the
fundamentals, all they'll be doing is providing
profits for speculators," he said. "From our
perspective, no matter what they want to do in
their market, when they wake up on Monday
morning they're still going to be in a depression."
Mr Soros is best known in Asia for being
personally vilified last year by Malaysian Prime
Minister Mahathir Mohamad for betting against the
Malaysian ringgit and stock market.
Mr Druckenmiller appeared confident Quantum's
latest bet would work.
"We have US$20 billion in total, we have our own
capital involved, and I just don't see us as being
able - just as I don't see the Hong Kong Monetary
Authority being able - to buck the trend," he said.
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