WSJ.com - 'Hot Money' Still Piles Into Asia

リンク: WSJ.com - 'Hot Money' Still Piles Into Asia.

'Hot Money' Still Piles Into Asia

Currencies and Stocks Gain
Despite Hong Kong's Move
To Discourage Speculation

By ANDREW TORCHIA
DOW JONES NEWSWIRES
May 20, 2005

SINGAPORE -- Currencies and stock prices across East Asia stayed strong Thursday despite Hong Kong's move to deter the inflows of speculative "hot money" that have been buoying markets across the region.

Late Wednesday, the Hong Kong Monetary Authority said it was introducing a ceiling for the Hong Kong dollar against the U.S. dollar to discourage the currency's use as a trading proxy for speculating on the yuan, as well as to make room for Hong Kong interest rates to rise.

The surprise announcement raised the possibility that other economies experiencing big inflows of funds speculating on an appreciation of the yuan -- China itself, as well as Malaysia and to a lesser extent Singapore, Taiwan and South Korea -- could take similar action.

Any reversal of the flood of hot money into Asia could deal a major short-term blow to the region's markets.

Hong Kong traders said that after an initial outflow of funds from the territory on Wednesday night, there was no sign of major outflows on Thursday. What's more there were even some fresh inflows of foreign money into the stock market. The Hang Seng index ended 0.5% higher at 13698.93 points, confounding fears that it would slide.

"We saw some of these speculators closing positions [Wednesday] and going away, and now they are back again," said Francis Lun at Fulbright Securities.

By Thursday morning, most investors were clearly betting that because China has sovereignty over Hong Kong, the local monetary authorities may have been informed of an imminent yuan revaluation and were making preparations to keep the Hong Kong dollar stable at that time.

Also Thursday, several Hong Kong banks moved to raise interest rates. Hongkong & Shanghai Banking Corp., the local operation of HSBC Holdings PLC, said it will raise its prime lending rate by a half percentage point to 5.75%, starting Monday. It said it will also raise its savings rate to 0.75% from 0.25%.

Hang Seng Bank Ltd. and BOC Hong Kong Holdings Ltd. raised their respective prime rates by half a percentage point to 5.75%, and their savings rates to 0.75%. Standard Chartered Bank PLC's local arm and Bank of East Asia Ltd. raised their best lending rates to 6% from 5.5% previously. They adjusted their savings deposit rates to 1% from 0.5%.

Although the monetary authority's chief executive, Joseph Yam, said Thursday that he expects local rates to rise nearer to those of the U.S, he doesn't expect them to rise "significantly."

Elsewhere in Asia, Hong Kong's action only served to increase speculation that China would soon change its currency peg, allowing the yuan to appreciate against the U.S. dollar.

Taiwan was one market buoyed by such hopes; its benchmark stock index closed up 1.4% at 5970.71, also helped by Wall Street's strong performance the previous day, while the Taiwan dollar firmed to 31.300 against the U.S. dollar from its previous close of 31.383.

RBC Capital Markets said the Hong Kong Monetary Authority's move was part of a series of events that "will eventually lead to a yuan revalue in the coming weeks." It predicts China will move from a de facto yuan peg against the U.S. dollar to a trade-weighted basket of currencies, producing a rise in the yuan against the dollar of between 3% and 5%.

Many analysts, however, think that theory is wrong, noting that Chinese leaders have in recent days strongly indicated they won't be bullied by foreign pressure into rushing a yuan revaluation.

Bank of America's Robert Sinche said he didn't believe Hong Kong's move was linked to knowledge of any imminent yuan policy change. Instead, he argued, it "merely reflects the monetary authority's interest in maintaining stable conditions in local markets. With large on-again, off-again speculative capital inflows since 2003...the HKMA began to consider the need for a two-sided commitment."

Merrill Lynch, while noting that a yuan revaluation is only a matter of time, said it doubted Hong Kong's monetary authorities would have had advance knowledge of a yuan revaluation. "Instead, we think HKD rates are too low for official comfort [and the] pace of the recent increases in property prices and CPI inflation too high for official comfort."

And although some East Asian currencies benefited Thursday from hopes they would attract speculative funds leaving the Hong Kong dollar, the region's central banks may attempt to prevent that.

The Monetary Authority of Singapore is unlikely to allow increased currency bets using the Singapore dollar as a proxy for revaluations of the yuan or the Malaysian ringgit, Singapore's UOB said. Traders in Singapore suspected the Singapore monetary authority intervened early Thursday to erase some of the Singapore dollar's gains Wednesday night.

BNP Paribas strategist Naomi Fink said Hong Kong's move probably wouldn't have much further impact on Asian currencies in the short term, but that it did imply speculative flows into Asia could be curtailed in the medium term.

Write to Andrew Torchia at andrew.torchia@dowjones.com¹