Hang Seng thru 10,000

Enzo Michelangeli em at who.net
Mon Nov 2 03:18:14 PST 1998


-----Original Message----- From: boddhisatva <kbevans at panix.com> Date: Monday, November 02, 1998 6:09 PM


> C. Burford,
>
> Your praise of Hong Kong is a little shocking coming from a
>socialist. The Hang Seng is a joke in which the government spends tax
>money to keep the portfolios of the wealthy from going into the toilet
>where they may very well belong.

A friend of mine in NYC always says that HK is Alice in Wonderland, and he would find comfort in your words: they are surprisingly close to those used by the local Democratic Party. Only, the DP spokespeople supported their claims enlisting the help of the late Adam Smith :-)


> It's no surprise that the Hang Seng is
>going up, considering the huge move in the yen that position unwinding has
>caused, the reduced float thanks to government buying and the rules (what
>state are they currently in, anybody know?) against short-selling.

Short-selling, as far as I know, is allowed for a number of blue chips. In fact, the reason why the HK Government intervened is that a number of speculators were getting a free ride by shorting the stockmarket, then attacking the HK Dollar (which is pegged to the USD since 1983). This caused hikes in the interest rates and corresponding sharp falls in the stocks, especially in the property and banking sector which are especially sensitive to high short-term rates. Of course, there are other reasons behind the recent recovery: 1. The HK Monetary Authority has taken measures to lubricate the mechanism of the currency board. For example, the commercial banks may now use their deposits in the settlement accounts for forex operations. Don't forget that the reserves of foreign currency backing the currency board are about twice as large as M0: under these conditions, there is no excuse for a large spread between interest rates on HKD and interest rates on USD (other than suspicion of the true intentions of the government). 2. The Russian crisis has given the hedge funds other things to worry about. They are still licking their wounds, and won't be back for a while. 3. Most importantly, the FED has cut the interest rates on the USD, triggering a slide in the exchange rate of the USD vs. Yen and Eurocurrencies. This has made unlikely a devaluation in the Chinese Renminbi, which would have hurt Hong Kong a lot.


> While
>there is an argument that the government was simply keeping the Hang Seng
>from being overwhelmed by foreign money (which was short the market) there
>is no reason to suppose that the foreign money *had* to be short or that
>it could not have changed positions.

I'm not sure I understand your point. The positions in the stock market are quite visible, and the HK Monetary Authority, after establishing a real-time gross settlement system for interbank operations, has also a pretty clear view of the cash flows. The fact that the money was foreign or local is totally irrelevant (it's been a while since we capitalists have junked nationalism...)


> As far as the size of the capitalist class in Hong Kong, I would
>re-check the figures. On an island known for mansions that are literally
>plated in gold and a near fanatical devotion to the pursuit of wealth, I
>think the rich may have a bit more influence than you suspect.

True. I gotta keep sunshades at home to protect my retinae from all the yellow glitter :-)

Cheers --

Enzo



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