HEDGE FUNDS SEE LONG WAIT BEFORE RETURN TO INDONESIA
--Concerted Hedge Fund Attack On Hong Kong Dollar Unlikely
By Matthew Saltmarsh
HONG KONG (MktNews) - Despite the resignation earlier Thursday of Indonesia's President
Suharto, hedge funds from the West aren't likely to return to country in the near term, at least while
the political situation remains fluid, hedge fund managers said.
"The major consideration has been that you need to see substantial reform and action (in
Indonesia), but all we have so far is rhetoric," Damien Hartfield, director of managed futures and
hedge funds at Deutsche Morgan Grenfell told Market News on the sidelines of a conference here.
Hartfield said the resignation of Suharto will make no difference unless there are tangible moves
towards genuine economic transparency and political reforms. Although it is early days yet, there
are still no signs of either occurring near term.
Hartfield and other hedge fund managers said they had little exposure to the Indonesian market
even before the recent spiral into chaos. The funds that were in the country were in local equities or
venture funds, with some limited currency exposure as a result.
"It now completely depends on the personnel and the policy," said John B. Trammell, director
of Argonaut Capital Management. "If Habibie rejects the IMF, the economy will suffer and we're
back to a dangerous situation. If there is political and economic reform, the economy will right
itself."
Trammell noted that assets in Indonesia are now very cheap but it is impossible for hedge funds
to turn a profit in the midst of such volatility. Asked whether hedge funds lost much money in
Indonesia, he said, "there wasn't much money in there."
"When we see stability and the reforms are on track, then money will start returning," agreed
Henry D.C. Lee, managing director at Hendale Asia.
All of the hedge fund managers noted that South Korea and Thailand are now well on their way
to returning to economic normalcy. "Thailand and Korea are very much on track," said Lee, noting
good interest in recent sovereign bond issues for the two. "You don't buy these bonds unless there
is money to be made somewhere down the track."
"They're cheap," said Argonaut's Trammell of the Asian sovereign issues. "Investors are lining
up as there is a degree of confidence that growth and good economic management will return in the
next few years."
Asked whether the U.S. dollar is too strong against Asian currencies, DMG's Hatfield said there
is a fundamental overvaluation of the dollar across the board.
He noted, however, that the dollar is likely to range trade in a "corrective mode" against
regionals probably for the next 12 months, until economic activity increases and capital flows back
into the markets. The market is still digesting the magnitude of the recent currency moves in the
region, he added.
However, DMG's Hatfield cautioned, "In terms of the massive tiger growth, Asia will never be
the same again." He also noted that the transparency required under the new economic reality is
likely to trim growth, as will caution from international investors.
All of the managers agreed there is no intrinsic need for China to devalue its currency at the
moment. However, they also agreed that China is unlikely to hit its 8% annual growth forecast for
1998.
"There is evidence that the economy is slowing and that unemployment will rise, but there is no
need to devalue to pursue growth," said Lee at Hendale.
The money managers also played down the probability of a concerted hedge fund attack on the
Hong Kong dollar peg to the U.S. unit. DMG's Hatfield said the "bet size" required for the play is
enough to deter most funds. He said for a manager with $1 billion to invest, the maximum "bet
size" allowed would never be more than 2-3%, hardly enough to take on the $80 billion reserves of
the HKMA.
"It would be an expensive each-way bet," said Hatfield. "There is only $300 billion allocated to
hedge funds globally and not all will focus on the Hong Kong dollar." He noted that money
managers in New York are averse to taking positions a time zone they are unable to watch in real
time. HEDGE FUNDS SEE LONG WAIT BEFORE RETURN TO INDONESIA
--Concerted Hedge Fund Attack On Hong Kong Dollar Unlikely
By Matthew Saltmarsh
HONG KONG (MktNews) - Despite the resignation earlier Thursday of Indonesia's President
Suharto, hedge funds from the West aren't likely to return to country in the near term, at least while
the political situation remains fluid, hedge fund managers said.
"The major consideration has been that you need to see substantial reform and action (in
Indonesia), but all we have so far is rhetoric," Damien Hartfield, director of managed futures and
hedge funds at Deutsche Morgan Grenfell told Market News on the sidelines of a conference here.
Hartfield said the resignation of Suharto will make no difference unless there are tangible moves
towards genuine economic transparency and political reforms. Although it is early days yet, there
are still no signs of either occurring near term.
Hartfield and other hedge fund managers said they had little exposure to the Indonesian market
even before the recent spiral into chaos. The funds that were in the country were in local equities or
venture funds, with some limited currency exposure as a result.
"It now completely depends on the personnel and the policy," said John B. Trammell, director
of Argonaut Capital Management. "If Habibie rejects the IMF, the economy will suffer and we're
back to a dangerous situation. If there is political and economic reform, the economy will right
itself."
Trammell noted that assets in Indonesia are now very cheap but it is impossible for hedge funds
to turn a profit in the midst of such volatility. Asked whether hedge funds lost much money in
Indonesia, he said, "there wasn't much money in there."
"When we see stability and the reforms are on track, then money will start returning," agreed
Henry D.C. Lee, managing director at Hendale Asia.
All of the hedge fund managers noted that South Korea and Thailand are now well on their way
to returning to economic normalcy. "Thailand and Korea are very much on track," said Lee, noting
good interest in recent sovereign bond issues for the two. "You don't buy these bonds unless there
is money to be made somewhere down the track."
"They're cheap," said Argonaut's Trammell of the Asian sovereign issues. "Investors are lining
up as there is a degree of confidence that growth and good economic management will return in the
next few years."
Asked whether the U.S. dollar is too strong against Asian currencies, DMG's Hatfield said there
is a fundamental overvaluation of the dollar across the board.
He noted, however, that the dollar is likely to range trade in a "corrective mode" against
regionals probably for the next 12 months, until economic activity increases and capital flows back
into the markets. The market is still digesting the magnitude of the recent currency moves in the
region, he added.
However, DMG's Hatfield cautioned, "In terms of the massive tiger growth, Asia will never be
the same again." He also noted that the transparency required under the new economic reality is
likely to trim growth, as will caution from international investors.
All of the managers agreed there is no intrinsic need for China to devalue its currency at the
moment. However, they also agreed that China is unlikely to hit its 8% annual growth forecast for
1998.
"There is evidence that the economy is slowing and that unemployment will rise, but there is no
need to devalue to pursue growth," said Lee at Hendale.
The money managers also played down the probability of a concerted hedge fund attack on the
Hong Kong dollar peg to the U.S. unit. DMG's Hatfield said the "bet size" required for the play is
enough to deter most funds. He said for a manager with $1 billion to invest, the maximum "bet
size" allowed would never be more than 2-3%, hardly enough to take on the $80 billion reserves of
the HKMA.
"It would be an expensive each-way bet," said Hatfield. "There is only $300 billion allocated to
hedge funds globally and not all will focus on the Hong Kong dollar." He noted that money
managers in New York are averse to taking positions a time zone they are unable to watch in real
time.
The pressure on the Hong Kong dollar last October was most likely "capital flows" and not
specifically hedge fund positions, Hatfield said. "People were protecting themselves and moving
away from the risk area."
"Loss of local confidence is the only thing that can push a currency to the brink," said Trammel
at Argonaut. "There is no speculator in the world big enough to push the Hong Kong dollar around
unless the locals lose faith. My heart and mind tell me there was no hedge fund in the world short
of Hong Kong dollars last October. They didn't think of it. It was purely a local event."
Trammell also said that short positions taken in the Hang Seng Index, perhaps as a means of
shorting the Hong Kong dollar, were also locally based or were short positions placed by U.S. funds
to protect underlying long positions.
All three players said hedge funds only take positions against a currency or economy when there
is a mis-match of economic fundamentals. None of the three said they could see such a mis-match
occurring in Hong Kong in the next few years. "A lot would have to change before most funds
shorted the Hong Kong dollar," Trammell said. He added there is a huge pool of money waiting to
flow into Hong Kong "when the price is right."
Trammell also noted that the peg might correct itself in time as many commentators agree that
the U.S dollar is overvalued and likely to ease over the next 12 months, taking the Hong Kong
dollar lower with it. He noted the dollar appears overvalued against most Asian and other major
global units, although against the yen and sterling, there is less of an imbalance.
The pressure on the Hong Kong dollar last October was most likely "capital flows" and not
specifically hedge fund positions, Hatfield said. "People were protecting themselves and moving
away from the risk area."
"Loss of local confidence is the only thing that can push a currency to the brink," said Trammel
at Argonaut. "There is no speculator in the world big enough to push the Hong Kong dollar around
unless the locals lose faith. My heart and mind tell me there was no hedge fund in the world short
of Hong Kong dollars last October. They didn't think of it. It was purely a local event."
Trammell also said that short positions taken in the Hang Seng Index, perhaps as a means of
shorting the Hong Kong dollar, were also locally based or were short positions placed by U.S. funds
to protect underlying long positions.
All three players said hedge funds only take positions against a currency or economy when there
is a mis-match of economic fundamentals. None of the three said they could see such a mis-match
occurring in Hong Kong in the next few years. "A lot would have to change before most funds
shorted the Hong Kong dollar," Trammell said. He added there is a huge pool of money waiting to
flow into Hong Kong "when the price is right."
Trammell also noted that the peg might correct itself in time as many commentators agree that
the U.S dollar is overvalued and likely to ease over the next 12 months, taking the Hong Kong
dollar lower with it. He noted the dollar appears overvalued against most Asian and other major
global units, although against the yen and sterling, there is less of an imbalance. |
