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

To: don pagach who wrote (5388)	8/6/1998 12:37:00 PM
From: tom	Read Replies (3) \| Respond to of 9980

On the subject of devaluations... Interesting to see that today the 6 month forward rates for $HK widened sharply to 2500 from 1600 at the start of the day. Apparently the hedge funds are sensing a sharp reversal on the Chinese side. Zhu saying what a negative effect deflation is having on the economy, many minor officials saying that China may need to devalue, the black market rate for RMB slipping to 9.1. I think that devaluing the RMB probably wouldn't help China and I am about 75% sure they realise this and therefore won't do it. They wouldn't get any competitive advantage as the other Asian currencies would collapse, they would lose all their hard won credibility with the global financial community and they would probably destroy HK. The HKMA continue to try to manage liquidity to avoid spikes in interest rates (arguably not a bad idea but it annoys the currency board purists). Hong Kong always have the ultimate threat of completely (US) dollarising the economy (ie just allow everyone to change HK$7.7 for US$1) if push comes to shove. If the Chinese could live with the US$ as the Hong Kong currency (which it is anyway) then this will always be the safety net. The IMF would probably have to announce a standby facility to cover the HK$ deposits not covered by foreign reserves but I think they would go for this and in any event it is unlikely that every Hong Kong $ would be exchanged for a US$. The HK$ will probably not devalue for this reason but the economy will remain very, very weak for at least the next two years. Sell all property and bank stocks (and definitely all the red-chips!)