Soros praises HK for blocking his dollar 'attacks'

PUBLISHED : Tuesday, 16 June, 2009, 12:00am
UPDATED : Tuesday, 16 June, 2009, 12:00am

Billionaire financier George Soros has praised the Hong Kong government for thwarting his attempts to undermine the local currency and stock market in 1998 but maintained he had every right to do so.

Mr Soros, criticised as being a predatory speculator whose highly profitable currency attacks in 1997 were blamed for destroying the Thai and Malaysian economies, credited the Hong Kong administration for intervening in the local stock and futures markets during the Asian financial crisis. But he remained unapologetic about his actions.

The financier made his comments to China Central Television while in Shanghai on Sunday to give a speech at Fudan University.

'They actually did a very good job defending the Hong Kong dollar, so they deserve credit. And my attack, if you call it that, was without success.

'I don't feel any sense of guilt ... There is nothing wrong about it. This is a point people have difficulty understanding because, in speculating in the financial markets, I do so according to the rules that prevail.'

Hungarian-born Mr Soros' actions in 1997 led to him being described as 'a villain and a moron' by Mahathir Mohamad, then prime minister of Malaysia.

Mr Soros' latest comments mirror those he made during a visit to Hong Kong in 2001, when he said local monetary authorities did 'a very good job when they intervened to arrest the collapse of the Hong Kong market' and that the subsequent damage to the government's laissez-faire reputation was worth it.

The government was generally perceived to have won the battle with speculators after then-financial secretary Donald Tsang Yam-kuen went on an unprecedented HK$118 billion stock-buying spree to defend the currency peg in August 1998.

The administration justified its actions by saying hedge funds such as Mr Soros' Quantum Fund were manipulating markets by dumping the Hong Kong dollar while taking short positions on the stock and futures markets.

Hedge funds profit in a falling market by shorting stocks, which allows them to sell borrowed stocks and buy them back at a lower price.

The Quantum Fund was set up in 1969 and started to experiment with currency manipulation. The fund made money from the devaluation of the Thai baht in July 1997 by betting on falling stock prices. The attack on the Hong Kong dollar raised fears the government would have to break the peg to the US dollar.

Sales of large quantities of the local currency flooded Hong Kong with cash and pushed up interest rates as investors sought a higher rate of return. This caused capital to flow from equities to interest-bearing investments and bank deposits as investors abandoned stocks.

Had the government failed to intervene or been unsuccessful in its buying spree, hedge funds that had bet on falling stock and futures markets would have reaped huge gains.