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Kenneth Ko

THE Hong Kong dollar will remain on the strong side of the $7.80 link rate with the US dollar, says John Mulcahy, managing director of UBS Securities (Hong Kong).

   Mr Mulcahy said the inflow of funds into the territory, as a result of higher interest rates and investment opportunities, would continue to support the local currency.

  In particular, the yuan's unified exchange rate would give rise to the flow of capital from China into Hong Kong in anticipation of the yuan's depreciation, he said.

  He predicted the Hong Kong dollar would revolve around the rate of $7.72 against the US currency this year.

  However, Ian Perkin, assistant director of the Hong Kong General Chamber of Commerce, expected to see a narrower gap with the link rate and forecast that the local currency's exchange rate would be about $7.77 against the US dollar.

   He disagreed with suggestions that the yuan's unified exchange rate would fuel Chinese capital into Hong Kong.

  Mr Perkin said the yuan was still not a free-flow currency under the unified exchange rate and the Chinese Government was expected to intervene with the rate's movement if necessary.

  Dismissing excessive flow of Chinese capital into Hong Kong, he said the rise in Hong Kong investment into China would have a balancing effect on cross-border capital flow.

   Mr Perkin and Mr Mulcahy were speaking at a lunch meeting of the Hong Kong Management Association on the prospect of the US dollar.

   The other speaker was Marc Faber, managing director of Marc Faber Ltd.

   Mr Mulcahy said the US economy was enjoying a resurgence in the manufacturing sector, with statistics revealing impressive growth in investment in plant.

  But there was no overwhelming evidence of a dramatic increase in inflationary pressures, he said.

   Overall, he expected to see a weakening in the exchange rates of the yen, deutschemark and pound against the US currency due to the economic problems in those countries.

  ''Neither Japan nor the US appears willing to allow the yen to strengthen through 105 to the dollar and it is evident that both the Bank of Japan and the US Federal Reserve will support the dollar at such levels,'' Mr Mulcahy said.

  According to his forecasts, the yen will weaken to 121.5 against the US dollar, the mark will weaken to 1.9 and the pound will dip to US$1.316.

  On December 30, the dollar was quoted at 111.85 yen, 1.73 marks and stood at $1.47 against the pound.

   Mr Perkin was relatively bullish on the value of these currencies, with forecasts of 115 for yen, 1.75 for the mark and $1.49 for the pound.

  He predicted a low economic growth in Europe generally but said the British economy would fare better, while China and Asian countries, except Japan, would enjoy high growth rates.

  Mr Faber, who is better known as Dr Doom, was pessimistic about the prospect of the yen in anticipation of an economic contraction.

  He expected the yen's exchange rate would weaken to about 130 to 140 to the dollar during the year.

  His investment tips were for gold and commodities as he felt the performance of the equity assets markets had peaked.

  Mr Faber forecast gold would appreciate to US$450 an ounce and oil would rise to US$17 a barrel.

  Mr Perkin also expected gold and oil to appreciate, but to $420 an ounce and $16 a barrel, respectively, during the year.

  At the end of last year, gold was fixed at $391.75 an ounce and oil stood at $13.15 a barrel.

  Mr Mulcahy was less optimistic about these commodities, forecasting that gold would fall to $350 an ounce.

     and oil would rise moderately to $14.50 a barrel.

  He said lower interest rates had fuelled the gold rally, aided by strong physical demand from China, last year.



HK$ set 'to stay strong'