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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (2628)	2/11/2004 12:42:34 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

INTERVIEW:Asian Currencies May Be Linked To China's Yuan By Andrew Batson Of DOW JONES NEWSWIRES ADVERTISEMENT HONG KONG (Dow Jones)--If China does eventually allow its currency to appreciate, investors should be prepared for similar gains in other Asian currencies as their governments try to stay in step, says the manager of one currency fund. "I know that the renminbi (or yuan) peg will end. As a foreign exchange manager, I want to make sure that I'm positioned for that by owning the Asian currencies," said Avinash Persaud, investment director at GAM, an asset management firm owned by UBS AG. GAM manages US$27 billion for its clients. "I think that people have tended to view Asia as being on a dollar peg. I think in reality, today, Asia is on a renminbi peg," he said in an interview with Dow Jones Newswires. "The whole of Asia is trying to move with China. It's not trying to move with the dollar." That is due not only to the massive volume of trade other Asian countries have with China, but also to the broader influence China's growing economy has on prices in the region, he said. "Even if you're not trading with China, you're competing with China. "This is a testable theory," Persaud said. If it is true, he said, then after any revaluation by China, the currencies of major Chinese trading partners like Japan and Taiwan should also appreciate. Because they trade so much with China, there is a limit to how much these countries' currencies can appreciate against the U.S. dollar before it begins to harm the domestic economy. But if China moves its currency, that limit rises. "If what happens is that the Asian currencies as a whole appreciate with the renminbi, that tells you that it may be denominated in dollars, but it's a renminbi peg," he said. Persaud wouldn't be drawn into predicting when China might make an adjustment to its exchange rate. Many foreign analysts are forecasting a shift sometime in the coming year, though China's central bank said this week it has no timetable for any reforms. Changing the exchange rate is a major political decision, and one where pressure could be counterproductive, the fund manager said. U.S. politicians have been particularly vehement in criticizing China's tightly-controlled currency regime. "I doubt the Chinese would like to feel they are doing something in response to pressure. They will do it when they feel it is the right time," Persaud said. Moving The Hong Kong Dollar Peg One Asian currency that has already benefited from the widespread speculation over renminbi appreciation is the Hong Kong dollar - though an improving local economy and booming stock market have also helped. In recent months there have been enough purchases of Hong Kong dollars to cause it to strengthen to about 7.77 to the U.S. dollar, from its formal peg rate of 7.8. And the currency markets appear to expect the Hong Kong dollar to rise further, nearly converging with a projected stronger renminbi exchange rate. On Wednesday, the forward markets were pricing in an appreciation of the renminbi to 7.83 to the U.S. dollar in 12 months' time, from 8.28 currently. The markets were also indicating an appreciation of the Hong Kong dollar to 7.70 over the same period. Persaud said, however, that traders making that bet may have been seduced by an attractive "illusion" created by the close - and coincidental - numerical relationship between the exchange rates of the Hong Kong dollar and the renminbi. "The market is taking a bet that they will converge at a point that means a stronger renminbi per Hong Kong dollar than the current alignment," Persaud said. While he does agree that the renminbi will likely strengthen in relation to the Hong Kong dollar, he sees an exact convergence as unlikely. "There's no reason it would be one to one," he said. "We had that with the euro conversion. Wouldn't it be so neat if it was one to one? "The Hong Kong dollar is a sort of special economic zone from a currency perspective. It allows part of China to have a convertible currency," he said. "Once the renminbi becomes convertible, there's no need for the Hong Kong dollar. "What is likely to happen is the renminbi moves off the dollar peg, and the next step is the Hong Kong dollar links to the renminbi at a fixed exchange rate," Persaud said. sg.biz.yahoo.com