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Strategies & Market Trends : Thai Funds

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To: peter michaelson who wrote (105)	9/5/1998 7:45:00 PM
From: Polartee	Read Replies (1) of 107

Peter: I understand from the WEBS thread you closed out your MF-EWM position on Thursday. I did so the same day as well although it was not a profitable trade for me since I shorted some of the MF at low premiums of 24 and 29% late last year. If I hadn't hedged I would have made a ton of money. I closed out because of the uncertainty about EWM and how it would be priced relative to its NAV now that currency controls in Malaysia mean arbitrage can no longer be conducted with the creation units. This means NAV will not = price. Also, the MF premium had at least declined from its earlier heights. Morgan Stanley announced that with the currency controls in place, it was moving to a "fair value" system of determining NAV. Do you know how exactly they determine fair value? Sounds subjective. I believe that the NAV must have declined significantly from its previous value because of this new pricing system. The NAV ended this week at 1.98 compared to 2.46 the previous week even though the Malaysian market rallied after the imposition of currency controls. MF's premium has shot back up to 74% with the price at $3.44. Because of the high premium I'm considering shorting MF again but this time without an EWM hedge. This week's rally in Kuala Lumpur makes little sense to me. It rose about 16% in dollar terms. The economy is in steep recession. Inflation will rise (because of the country's shift to expansionary monetary policy, something that will also lower the black market value (the true value) of the ringgit). Also, Morgan Stanley is dropping Malaysia from its EAFE Index and this means $600 million of pension money indexed to the Malaysia component of EAFE will have to be dumped. None of this is bullish. Unfortunately, I don't have much information to assess valuation levels. The market has come down a lot from where it was last year so all the risk may be priced in. Any insight? Do you plan to short MF again? Regards, John

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