Rosser Jr, John Barkley wrote:
> I fear this puts me overquota for today, but I'm about
> to sign off, so...
> Sorry, Greg, this doesn't help. Maybe it makes the
> New York (or Cayman Islands) idiots feel better to be in a
> dollar denominated asset (the closed-end fund). But the
> fundamental value of that asset is still tied to the NAV in
> the local currency of the components in the fund. Thus,
> when the Thai baht tanks, that lowers in dollar terms the
> NAV of the assets in the fund. Anybody buying the fund is
> still sucker bait.
> Bye for today.
> Barkley Rosser
> On Thu, 08 Oct 1998 17:19:58 -0400 Greg Nowell
> <GN842 at CNSVAX.Albany.Edu> wrote:
>
> > Rosser suggested that closed-end purchasers were
> > ill-informed NY speculators who didn't know better.
> > While I have not read, as he has, scholarly articles on
> > the closed-end universe, I think the current high
> > premia on Asain funds has a better explanation.
> >
> > To wit.
> >
> > Foreign investment usually requires TWO asset
> > purchases. FIRST the currency, THEN the hard asset
> > (stock, etc.).
> >
> > If I have $1000 at par with 100,000 Baht, and I buy
> > stock in Thailand, my situation is:
> >
> > 100,000B in stock at $1000.
> >
> > If the stock heads south, say, 20%, my situation is:
> >
> > 80,000B in stock at $800, ASSUMING the baht is stable.
> > BUT IF THE BAHT ALSO DECLINES 50%, my situation is:
> >
> > 80,000B in stock which to sell I must exchange, gaining
> > a value of $400.
> >
> > A closed-end bond fund eliminates the currency
> > uncertainty. I can trade directly in the stock, in
> > dollars, without going through a currency conversion.
> > I do not need the intervening asset, the Baht, to make
> > trades, and this eliminates to some extent the currency
> > problem. Thus if what I am interested in is the asset
> > peformance without reference to trasnitory currency
> > problems (which all multinationals are familiar with),
> > I can have a 20% increase or decrease in the
> > Baht-denominated performance without having the whole
> > thing bollixed up by exchange confusions. It reduces
> > currency downside and upside risk, because by trading
> > botches of Baht physical capital in dollar
> > denominations we can be less wary about the effects of
> > currency traders.
> >
> > Thus it makes sense to me that the Asian funds are
> > trading at a premium. Not because they are bubble
> > prone--they are all down 30-50% (in dollars) for the
> > year and have been punctured hard--but because in
> > effect it is possible to put a valuation on the asset
> > while separating the currency issue. In other words,
> > capital still needs hardworking starvlings to produce
> > stuff, no matter what the traders think, and that gives
> > value to the underlying assets. For closed-ends to
> > trade at a premium is probably not an indciator of
> > stupidity, but rather a pretty good quantification of
> > how much the current problems in Asia reflect not
> > "fundamentals" but the deleterious effects of currency
> > speculators.
> >
> > --
>
> > Gregory P. Nowell
> > Associate Professor
> > Department of Political Science, Milne 100
> > State University of New York
> > 135 Western Ave.
> > Albany, New York 12222
> >
> > Fax 518-442-5298
> >
> >
>
> --
> Rosser Jr, John Barkley
> rosserjb at jmu.edu
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
Fax 518-442-5298