Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Ron Bower who wrote (5667)	8/19/1998 3:23:00 PM
From: Paul Berliner	Read Replies (4) \| Respond to of 9980

Ron, I never personally gave a currency primer before, but I'll try my best. 1. Non-pegged currencies: Most major countries have a fully-convertible currency, meaning it is traded freely through forex and the Bank of International Settlements. Markets and the country itself can adjust their exchange rates through currency trading in order to more favorably effect their respective economies. Singapore has recently sold Sing Dollars in an effort to stimulate exports - but the main thing here is that the currency translation adjustments are gradual. Even if the US$ strengthened overnight by 2 to 3 yen it is not that major a move in percentage terms. Thus, there is no "rush to sell" as their might be in HK. Sure, people have sold Nikkei stocks that they were previously long because the yen has depreciated close to 20% vs. the $US this year, but it's a slow, steady fall, not an overnight fall. I previously wrote that Taiwan might sell NTD's, which is not pegged, because of the favorable impact it would have on exports. Plus I argued that it would give a black eye to China. If Taiwan does this, the NTD will depreciate gradually, because they can only move it so much it one night be selling NTD's. They can not "announce" a new exchange rate for it. 2. Pegged currencies: The $HK, Argentine Peso, Chinese RMB/Yuan, and other currencies are "pegged" to the $US or other hard currencies or a combo. It basically means that if HK pegs its currency so that 1 $US = 7.7 $HK, then they're supposed to have the actual $US in reserve to "back" the currency. This is not the case with fully-convertible currencies. Pegged currencies cannot be traded normally forex or BIS. Speculators attack the $HK primarily through the HK debt/money markets. Now, why is the $HK overvalued, not undervalued? 1. Because of the peg, that currency has not been able to adjust to the deteriorating economic conditions of it's major neighboring countries. 2. A devaluation would benefit HK because domestic goods prices there are way too high. 3. Since the HK handover to China, HK is now part of China and thus shares the economic ailments plaguing the great red nation. Since the two have already to begun to combine their capital markets, it is only obvious that any Chinese problem is HK's problem. Any HK trader will tell you that prices are still too high and have further to fall, not just on the HS but across the property sector as well, which was preposterously overvalued. Bank loans collateralized by those props. just over a year ago are now seriously in default because the price of property has already been hammered, but it's STILL overvalued.... Also, the $HK certainly IS overvalued, especially relative to other regional currencies. Why in hell should the peg stay? Has HK economy prospered recently like the the US economy? No. But the currency is still pegged to the $US. The money supply figures coming out of HK recently aren't comparable to the US at all. And finally, I doubt that HK has enough $US backing the $HK these days that they would be able to satisfy a national demand to exchange $HK into $US. They need to devalue and will. Can anyone add anything I might have missed?