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Technology Stocks : C-Cube -- Ignore unavailable to you. Want to Upgrade?

To: Peter V who wrote (33784)	6/11/1998 7:51:00 PM
From: John Rieman	Read Replies (1) \| Respond to of 50808

China's currency statements are directed at Japan. They may have some leverage................................... insidechina.com Currency Fears Spark Heavy Selling in China Markets HONG KONG -- (Reuters) China's attempt to pressure Japan into action to revive its economy threw markets into a spin on Wednesday by fueling speculation about a sudden yuan depreciation, Hong Kong economists said. Concern mounted in Greater China markets after central bank governor Dai Xianglong (pictured) said the weak yen was pressuring his country's trade and investment performance. The Hong Kong market fell 4.91 percent to close at 7.979, Hong Kong interest rates soared, the Taiwan dollar hit fresh 11-year lows and the Taipei stock index sank. Foreign shares on the Shanghai and Shenzhen exchanges also closed weaker. For many analysts, the reaction was overdone. "These remarks have been greatly exaggerated in how the markets reacted to them," said Callum Henderson, managing analyst at MMS International. "This was not a statement saying we're going to let the yuan go if the yen keeps going." Many other economists in Hong Kong had the same view. "I think Dai was misinterpreted," said Simon Ogus, chief economist at SBC Warburg Dillon Read. "I don't think this should be read as a sign that China is thinking any more seriously about devaluing their currency." Instead, economists argued that Dai was trying to put pressure on Japan to do more to revive its economy and lend a helping hand to Asia. But there was no clear interpretation of Dai's comments. Dai altered the original text of a speech which said "the devaluation of the Japanese yen will not change the basis of stability of the renminbi's exchange rate." Instead, Dai pointed out the negative effects of a sliding yen on Southeast Asia and said China hoped Japan would stabilize its currency. His failure to explicitly rule out a devaluation led to fears that a weak yen could force China's hand. "It's going to be very difficult for them not to devalue the yuan any how and the weaker the yen gets, the more difficult it will be," said Andrew Ballingal, strategist for Schroders Asia. "Japan is a very convenient scapegoat. China will say, 'We couldn't help it because of Japan.' And the U.S. will love it because everybody loves to hate the Japanese at the moment." Analysts said politics were now far more relevant to the issue of Chinese yuan depreciation than economics. One U.S. bank economist said the yuan was now 20 percent over-valued and the Hong Kong dollar 50 percent overvalued on a trade-weighted, purchasing power parity basis. Pressure to narrow the gap with Asian currencies would grow if the yen sent the rest of Asia into another round of depreciations. "The economics have argued in favor of a depreciation since the fourth quarter of 1997 and they still argue for it but the politics interceded," the economist said. "It will take a political decision to reverse this position. Ultimately, this is an issue for Mr. Zhu Rongji." China's economic czar, Prime Minister Zhu, has pledged not to devalue the yuan before the end of the year. The upcoming visit to China by U.S. President Bill Clinton also makes any early action to depreciate a very remote possibility. "Don't forget China has scored political points in this crisis, to a certain degree at the expense of Japan. So what is the advantage for China to get into a beggar-thy-neighbor currency policy now?" asked Eugene Chung, strategist at SBC Warburg Dillon Read. But for many months, most Hong Kong economists have been forecasting a gradual depreciation of the yuan by up to eight percent from 1999 onwards. Many said their forecasts would be altered only if the yen plunged suddenly. "The key is the speed at which the yen falls. If the yen dribbles away over a protracted period of time, which is what the Japanese and the U.S. want, that is not fatal," Ogus said. "But if the yen were to really blow out, let's say it goes to 160/170 very quickly, which in the current circumstances cannot be ruled out, then everybody has serious problems." Ogus rates the likelihood of a sharp yen fall at 25 percent. ( (c) 1998 Reuters)