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

To: Investor2 who wrote (5723)	8/20/1998 4:32:00 PM
From: Defrocked	Respond to of 9980

I2, If I were long HKSI or KLIC I'd use the opp. to trade against the government just as I would currency intervention because you are now trading against people without a profit motive. While that can be dangerous, it is usually the best kind of fade. Take the HKSI futures for instance. Last trade date for Hang Seng Aug futures is Friday, Aug. 28 which will probably be quite sloppy. Valuation(stlmt) date for cash settlement is Mon, Aug 31. If Hong Kong Monetary Authority elects cash settlement, many more HKDs will be floating around the system which traders may want to exchange for USD anyway. Since this is not to HKMA's advantage, one would expect a rollover of Aug. positions to Sep(or Dec), which should widen the Sep/Aug spread reflecting an implied interest rate hike. HKMA could attempt to keep long futures positions for months, even years. In essence, their books would be carrying reserves now "pegged" to the Hang Seng Index in HKDs rather than HKDs valued in terms of the USD. What the HKMA will do with their long stock positions, let alone their long futures positions, has probably not been thought out yet.<ng>Today they were rumored to be on both sides of the market. IMHO it's a disaster just waiting to happen. Keep an eye on Hang Seng futures open interest. Taken to an extreme, the HKMA could theoretically mark-to-market all its reserves in the equivalent HKD amount of Hang Seng index values.<g> That may in fact not be so bad because when the HSI declines to properly reflect property values(sales of which are currently restricted by the govt) HKD reserves will then be similarly devalued by the market. Of course, the HSI will never decline if HKMA buys all outstanding equities and elects to never sell.<g> Just ask the postal saving system in Japan how happy they're with their holdings.(As if you'd get a straight answer<g>) BTW, Hong Kong is due to release a revised forecast of 1998 Gross Domestic Product and its half-yearly economic report on August 28, the same day as August futures expire. Finally, take a look at Joseph Yam's editorial in the WSJ today. (JY is CEO of the HKMA). This guy is soooo sure he is right and the rest of the capital markets are wrong. Righteousness, arrogance and overconfidence all wrapped up in one IMO. I'd make a trader like that take a vacation or a new job.<ng> Reminds me of Robert Citron. Replies to this post will be slow in coming as I'm preparing for a little R&R. FWIW. Good luck all.