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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Stitch who wrote (4415)	6/11/1998 8:39:00 PM
From: don pagach	Read Replies (2) \| Respond to of 9980

Stitch, I just can't fathom China or HK devaluing until after Clinton leaves and I see him putting heavy pressure on them not to, heck if they devalue Clinton's legacy is totally shot because then all heck will break loose in the economy. What kind of pressure does China exert on HKs monetary policy? Would that decision (to lose the peg) be made without China? Would it benefit China that HK devalued so that China would not have to? Am I reading too much into all of this??? See you all at 14,000

To: Stitch who wrote (4415)	6/11/1998 8:55:00 PM
From: Constant Reader	Respond to of 9980

Stitch, I think this may be of interest to the thread. Regards. A. Gary Shilling wrote this article, *"After the Yuan, the deluge"* in the current (15 June) issue of Forbes magazine: MY COLUMN of Sept. 22, 1997 recommended avoiding Asian developing markets except China. That turned out to be sound advice. Now I'm adding China to the list. She will devalue and touch off another round of competitive devaluations. Chinese officials stoutly deny it, but so did Mexican bigwigs up to the very day they abandoned the peso in 1994. Don't listen to Beijing. Look at the Chinese economy. It's likely to gain 6% in 1998. Heaven for a Western economy, but hell for China. She has 200 million people in coastal areas who are productively employed, but a billion in the hinterlands who would like to be, and 100 million more squatting in coastal cities looking for work. The situation is potentially very dangerous. China needs to restructure. That means axing one-third of the 100 million employees of state-owned enterprises and half of the 20 million civil servants. Beijing plans to halve the 8 million government and party officials. Then throw in 17 million new labor force entrants each year. That's nearly 60 million additional unemployed. China desperately needs growth. It has 40% excess capacity in manufacturing. Real estate is going begging. Vacancy rates in Beijing for Class A space are 35%, and 70% in Shanghai's new Pudong Financial District. Rent at Beijing's China World Trade Center is now $65 per square meter, down from $110 in 1995. Banks refuse to lend as they sweat their 20% nonperforming loans-five times the banks' equity capital. Export-led growth can't happen with the un-devalued Chinese yuan up over 60% against the devalued currencies of the eight Asian Tigers. The Bank of China expects big-time competitive pressure on the nation from Asian neighbors in textiles, shoes, home appliances and clothing. In these conditions, devaluation of the yuan is inevitable. When the yuan goes, so, too, does the Hong Kong dollar and its 15-year peg to the buck. Hong Kong's Hang Seng index is already anticipating the devaluation. It's down 20% just since late March. It was almost 17,000 last August, is now at 9600 and about to break below the Dow. China has one-third of developing Asia's output, so when she devalues, the rest will follow. She's the 500-pound gorilla. Think about Taiwan with her huge mainland investments and big trade ties to China. Her recent resistance to other huge Tiger devaluations will melt. And the wave will wash over to India, Pakistan and Latin America. And don't forget New Zealand and Australia with their close Asian trade ties. Asia takes two-thirds of Australian exports-60% of her coal and iron output is accounted for by exports, which are tumbling along with steel production in Japan and South Korea. Live cattle exports are also falling. No wonder the Australian dollar is hitting new lows in anticipation of a yuan-led break. China is the gorilla in Asia, but Japan is the whale, and a beached one at that. Far from promoting internal growth to help other Asians by absorbing their exports, Japan remains part of the problem by also continuing to rely on exports for growth. And 42% of her exports go to Asian countries, and they are collapsing. So expect the yen to follow the yuan in the competitive devaluation race for the bottom. A year from now 180 yen to the dollar isn't all that unlikely. For investors the implications are clear: Don't be long Asian stocks. The double whammy of currency and stock losses can be painful. But there's money to be made on the short side. In portfolios we manage we're short the Hang Seng, the Nikkei, selected Indonesian stocks (where the economy is disintegrating on schedule), the yen, and the Australian dollar. Eventually, Western powers, with or without the IMF, will step in to contain the crisis. Maybe currency boards of the sort Steve Hanke proposes, backed by G-7, will result. But for now, the direction of Asian currencies and stock markets is down.