To paraphrase Brad Pitt in Fight Club : The first rule of the Hong Kong dollar peg is you do not talk about the Hong Kong dollar peg. The second rule of the Hong Kong dollar peg is you do not talk about the Hong Kong dollar peg. So Emily Lau Wai-hing found to her cost on September 20 when reports surfaced that she had proposed a review of the peg at a Legislative Council meeting back in August and the local currency's premium over the greenback shot out to 230 pips. Loose lips, clearly, threaten to sink pegs. But for all the flack that Ms Lau received that day, history will most likely show that she did have a point. Which might explain why James Malcolm, JP Morgan's currency man in Singapore, is telling clients that, while he does not think that the peg is destined for the scrap heap for the next five years, the market will be increasingly pricing in its downfall. Mr Malcolm is suggesting that investors might want a punt on the peg because the premium is going to be rising significantly over the next three to nine months, along with interest rates, as the debate over the peg adds to the noise in the marketplace. Even before the weekend attacks in Indonesia sent a fresh wave of gloom through the region's currency markets, evidence of an increasing premium on the peg was out in force. Last week's tumbling markets and a depressing third quarter reading for Singapore's gross domestic product added to an already pressured dollar rate and saw forwards on the dollar blown out to 312.50 pips, their highest since March. A 'pip' is used to denote the smallest movement that a currency can make - in the case of the dollar, it is equivalent to one hundredth of one cent. Though nowhere near heights seen during the Asian crisis, it is clear that investors are putting a higher premium on the dollar these days. The media are certainly giving the peg more play this year. A quick search through a news archive service run by Dow Jones and Reuters shows that 418 stories mentioned the Hong Kong dollar peg last year compared to the over 500 pieces which have appeared so far this year. While there might have been the temptation to blame the initial signs of economic gloom on the bursting of the dotcom and technology bubble in the United States, the fingers of blame have been increasingly pointing at the peg to the dollar, which critics say, keeps the local currency artificially inflated to the tune of between 20 and 40 per cent. Until there were signs that the economy was picking up and the government was acting to sort out Hong Kong's long-standing structural problems, said Mr Malcolm, the risk premium attached to holding the Hong Kong dollar was likely to rise substantially. When and if the peg does go, said Mr Malcolm, the final blow would not come from the 'rogue speculators and anarchists' that Malaysian Prime Minister Mahathir Mohamad railed against in 1997. Instead, the peg will be dismantled after a long-term reassessment by Hong Kong officials and after the pros and cons have been weighed up. In the meantime, Mr Malcolm recommends that investors buy Hong Kong dollar forwards on dips, getting in at below 100 pips and taking profit above 300 pips, or a two-year US dollar call Hong Kong dollar put with a strike price at HK$8.6635.