bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

The Hong Kong Government has received praise from an unexpected source for its intervention in the stock and futures markets of August 1998 - billionaire financier George Soros.

On a visit to Hong Kong last week, Mr Soros said: 'The Hong Kong monetary authorities did a very good job when they intervened to arrest the collapse of the Hong Kong market in 1998.'

The small dent in the Government's free-market reputation was worth it, according to Mr Soros.

Mr Soros' Quantum Fund took sizeable positions against the Hong Kong dollar and stocks in 1998, according to the then manager of the fund, Stanley Druckenmiller.

Mr Soros' praise is in stark contrast to remarks by Mr Druckenmiller in an interview with CNBC at the time of the intervention, when he said the Government's stock-buying spree would not work: 'I'm baffled at what they are doing,' Mr Druckenmiller said at the time. 'If they're wrong on the fundamentals, all they'll be doing is providing profits for speculators.

'From our perspective, no matter what they want to do in their market, when they wake up on Monday morning they're still going to be in a depression.'

The Government claimed that hedge funds were manipulating the markets by heavy selling of the Hong Kong dollar to push up interest rates, which caused the stock and futures markets to fall. Short positions were taken by the hedge funds on the stock and futures markets before the currency selling, which enabled the funds to reap huge gains, the Government claimed.

To thwart such plays, the Government spent HK$118 billion buying stocks to prop up the market, so that the short positions of the hedge funds would not be profitable.

However, it is still a moot point whether such manipulation occurred, as no data has ever been produced by the Government to support its claims.

The Government is generally perceived to have won the battle with the hedge funds.

Mr Soros spoke at the Asia Society on Wednesday and the Foreign Correspondents' Club the following night, and was asked to comment on a wide range of topics.

He said greater democracy should be introduced into Hong Kong's Government. 'Hong Kong should lead the way in making the legislature more directly elected and maybe the executive,' he said.

'If there were advances in democracy it would send positive signals to the markets.'

Mr Soros also said the SAR was in a difficult position economically because of the erosion of its comparative advantage relative to mainland China.

While Mr Soros might be a nightmare to central bankers around the world who fear for their currencies, he is also renowned for his philanthropy in promoting open societies.

To Mr Soros there is no conflict between the activities of his fund - which some claim wreaked havoc on certain economies - and his charitable activities. He sees financial markets as amoral rather than immoral and says the events such as the devaluation of the Thai baht in July 1997 would have happened, anyway.

The Quantum Fund made money from the baht devaluation by taking short positions in December 1996 ahead of its devaluation on July 2, 1997 - the starting point of the Asian crisis.

'If we could foresee that the currency could not be maintained for a year - because we sold short for a year - then I think the authorities ought to have foreseen this also, and had they moved when we moved I think Thailand would have been spared the pain,' Mr Soros said.

While in Hong Kong, Mr Soros also released a consultation paper on how institutions such as the World Trade Organisation and the International Monetary Fund should reform to provide better assistance to developing countries.

Incentives should also be introduced for governments to rule better and combat corruption.

On speculation that the terrorists responsible for the attacks on the United States may have taken short positions in airline stocks, Mr Soros thought this unlikely as they could be traced. If the terrorists had taken such positions, however, 'that would be a wonderful lead for tracking them down', he said.

While Mr Soros wants Osama bin Laden hunted down, he called for some restraint in the response to the attacks for fear that Islam could be demonised and the political fallout could threaten governments in countries such as Pakistan.

'If we react to it in any way in kind then we are on a downward spiral,' Mr Soros said. 'We have got to deal with American public opinion because there is a clamour for something visible.'



Three years on, Soros praises Government over intervention