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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (6535)	8/2/2001 9:39:03 PM
From: TobagoJack	Read Replies (1) \| Respond to of 74559

Hi CB, Now we are that much closer to forever:0) My mind is made up, so do not try to confuse me with facts. What are you buying? Chugs, Jay

To: Ilaine who wrote (6535)	8/2/2001 9:46:32 PM
From: TobagoJack	Respond to of 74559

BTW CB, you had a question for me on HK's shape ... Here is one view, circulated also as 'homework' for my Friday lunch gathering ... most of the lunch participants are money managers (private, public, global, geo-specific), are cautiously bullish, selectively bullish, to raving mad bullish, except Jay, as you probably guessed. I treat the lunch as a boyscout outing, telling scary stories :0) QUOTE Thursday, August 2, 2001 'Dutch Disease' may offer a last boom CATHY HOLCOMBE Here is a stock tip heard the other day - "Dutch Disease". It was whispered the way people used to say "dotcom" at the beginning of last year. The tipster believes that Dutch Disease will offer Hong Kong one last boom in the boom-bust cycle before its fortunes are consumed by China in the years following entry to the World Trade Organisation. Dutch Disease describes the asset price inflation that comes when a country gets flooded by big inflows of capital, usually due to the discovery of some natural resource. (The term comes from a phenomenon in the Netherlands after the discovery of natural gas reserves there.) The New Territories may not be sitting on oil reserves but Hong Kong traditionally has had something better than oil - China. Some economists attribute Hong Kong's boom and bust cycles in the past decade at least partly to Dutch Disease. As the entry point to China's protected economy, Hong Kong had the equivalent of a precious commodity. Multinationals poising to enter China's market opened shop in Hong Kong, driving up competition for its property, services and workers. Added to this was the flow of capital from China to buy stocks and property, setting off speculative flights. When money flows into the SAR, the currency cannot strengthen because the exchange rate is pegged. Instead, its assets do. After too much inflationary pressure builds up, the bust comes, according to Dutch Disease theory. What our tipster is interested in is the alleged boom - one last fling before China's markets are pried open and we do not need Hong Kong to get in. Here is the scenario: China joins and companies around the world position themselves to enter its market. Yet the WTO entry is not a full-fledged opening. Many of the sector openings are on a graduated basis. Most economists expect that it will be at least five years after joining before the capital account is open, allowing for convertibility of the yuan. (Chinese officials have stated longer time frames but the United States pushed for a time frame of five years after WTO entry in the Sino-US bilateral negotiations). Meanwhile, China is not as amenable as Hong Kong in terms of tax and legal structures, infrastructure and general livability. So the SAR gets one last stab as the main gateway to China. It is an interesting theory, and one that does not speak well of the history of the SAR's past riches. Hong Kong Baptist University economist Tsang Shu-ki tracked the SAR's relative performance from 1984 to 1997 of per capita gross domestic product, private residential property prices and the Hang Seng Index. Starting from a normalised base of 100, GDP grew to 424.23 points over the period, property to 958.38 and stocks to 1,406.46. Throughout much of the 1980s, economic growth and asset price inflation were fairly consistent, with the wide gaps opening up from 1992 onwards. "Per capita GDP is chosen as a proxy for average income and purchasing power. Prices of real estate and stock shares should not overshoot it by too much," Mr Tsang wrote in an academic paper. If our tipster is right, this will happen again in the next five years even if the economy remains stagnant. It would make for a great opportunity. Money is cheap and easy to come by, some property can be bought at cost or lower, and stocks are in the lower side of their historical price-earnings range. However, it involves a good exit strategy. It means that it is not the Li Ka-shings, or the local entrepreneurial spirit that made the SAR wealthy, but the lucky combination of a port, a peg and a "precious commodity". What's Hong Kong going to do once all that's over? Jake van der Kamp is on holiday. Email Cathy Holcombe at cathyholcombe@scmp.com UNQUOTE