Donald may yet pull off coup
Let's try to peer through the haze a little. As of the close of business yesterday the Government had acquired - by some estimates - $120 billion or more of Hong Kong blue chip stocks.
The exact figure has not yet been revealed as the authorities have adhered to at least one cardinal rule in these matters - don't show your hand to anyone who has not paid to see it.
It may turn out that Donald Tsang has pulled off one of the great investment coups of history. If investors who are now pessimistic find themselves in two years' time bidding for the stock at much higher prices he will certainly look a hero.
But one thing is equally certain. If he had known two weeks ago how much money he would have to spend to achieve his object of punishing speculators he would have thought twice about it and looked a little harder for other ways of doing it. It may have been the right thing to do. In hindsight, it also looks rash.
He has left himself open to the charge that he devoted far more public funds to it than he either intended or than was responsible to do and that he then continued to push stubbornly ahead rather than lose face.
Perhaps it is not so but it is still a charge that he will have to face in the court of public opinion and which he will have to answer in a forthright manner if he is to be acquitted of it.
Of more immediate concern, however, is what he will do now.
Although he did not exactly say so yesterday, the odds are that big intervention buying will now be reduced and the market will settle to where the normal balance of supply and demand will take it.
But he also spoke of new measures to keep speculators at bay. The love affair with derivative markets and big funds - which call themselves investors but have fangs protruding from the sheepskins they wear - is over.
One likely start is a much more stringent control of short sales on the stock market. By booking short positions offshore many foreign investors have evaded the rules which require them to disclose these positions and it gave their speculative raids a sharp edge.
Look for new rules that hem them in tightly, perhaps by allowing short positions only against borrowed stock lodged in Hong Kong.
For the past two trading days the Government was virtually the only buyer on the market and it drove turnover to an all-time record. Around the world investment funds scoured their vaults for Hong Kong stock to sell into this buying campaign on the reasoning that it cannot last and prices will drop when it ends.
Meanwhile, the Government also took massive short positions in the September Hang Seng Index futures contract.
This achieves two ends. The first is that selling it helps frustrate speculators seeking to recoup losses by rolling over into September the short positions they held in the August contract. Sending them off licking their wounds was the object of intervention. The second is that if the buying campaign is now wound down and the Hang Seng Index falls again, as most people expect, the Government will have hedged through the futures market any paper losses on the stock it has bought.
And let's still call them paper losses at this stage. The Government has the financial strength to hold these stocks and who knows, the timing may prove to have been extremely fortuitous.