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Enoch Yiu

Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong yesterday said the authority has defeated the speculators who sold down the Hong Kong dollar on Friday.

 Addressing a hastily called press conference, he also attempted to allay concerns about the currency by repeating his confidence in the fundamental strength of the local economy.

 However, he said the authority would continue to monitor the situation closely through offices in London and New York.

 Referring to the surge of activity in the Hong Kong dollar on Friday, he said: 'We have won the game so far with the help of the banks which pushed the interest rate up.'  Speculation mounted at the weekend that the Hong Kong dollar could this week be the target of a more concerted strike by international hedge funds which have created turmoil in other regional markets.

 These markets tumbled again yesterday, dragged down by Friday's slide on Wall Street and continued volatility in currency trading.

 Stock markets in Japan, the Philippines, Malaysia, Singapore, Thailand, Indonesia, Australia and New Zealand slumped.

 Last night, the Hang Seng London Reference Index plunged a further 236.54 points to close at 15,334.95, following on from its 525.39 point fall on Friday night.

 In New York, the Dow Jones Industrial Average, which suffered its second biggest point loss ever last Friday with a three per cent drop, continued the fall.

 By 3.30 pm, it was down 25.55 points to 7,669.11.

 In the currency markets, dealers said there were no signs of any central bank intervention to halt the general slide against the US dollar.

 The Indonesian rupiah was the hardest hit although the Thai baht and the Malaysian dollar also came under sustained pressure.

 Referring to the Hong Kong dollar, NatWest Markets' head of Asian bond and currency research, Daniel Lian, said: 'I have spoken to the hedge funds at the weekend, the same group that took the other regionals down, they are not uncomfortable shorting the local dollar, they see it as overvalued.'  While the Hong Kong Monetary Authority's armoury was seen as near impregnable, one key area of weakness could be local confidence in the currency.

 If this started to erode, the peg against the US dollar could be tested by a wave of internal pressure as people converted their Hong Kong dollar savings.

 Mr Yam said none of the bigger hedge funds was operating against the dollar on Friday and that the trades were in sums of less than US$50 million.

 'Some people who sold the Hong Kong dollar on Friday have bought back yesterday in the London trades.'  The Hong Kong dollar strengthened as the potential speculators unwound their positions. The Hong Kong dollar last night stood at $7.737 to the US dollar, compared with $7.752 on Friday.

 He declined to say whether the authority intervened in the market on Friday.

 However, he said banks were told to be 'prudent' in their lending, a possible warning about lending to speculators.

 Mr Yam said that the people of Hong Kong and foreign investors have confidence in the local economy and that nothing has changed to weaken this reason for support.

 He refused to forecast how the exchange rate would move this week.

  He said Hong Kong would not lose its competitiveness even if other Asian currencies were devalued.

 'Hong Kong has become a service-oriented economy and is not so sensitive to the exchange rate changes. I don't think our competitive power will be significantly affected,' he said.



Dollar raid defeated: Yam