[freeier]

chris > to correct you, the financial literacy of even the finance people are quite low. 8-) not many people understand the basic idea of investments. they know how to follow and listen to tips and flows..

8-P

[connecta]

thanks bobbybo for the info! but opening an offshore HSBC account just for being able to get those interest rates is something i would need to think about at first.

thanks as well to freeier and PDLM for your comments on bonds. everyone is talking about the peak of the rate increase cycle in the usa and even if the HKD should get pegged to the RMB in the worst case, it would probably not be very likely that china would choke off their economy by letting the RMB appreciate too fast. i think i need to get more information on these commodity linked investments with capital guarantee at first before making my decision. and let's see what the statement of bernanke will be on coming tuesday

no, i have to admit that the typical hedge funds are no option for me - at least not yet. their minimum investment sum would not allow me to maintain an attractive portfolio diversification. i still believe in a strong commodity cycle and want to participate in that while mixing it with some rocksolid investments.

[z754103]

I'm getting confused! Please can someone explain the thinking behind expected currency moves to me? What's the reasoning behind why the HKD could re-peg to the RMB?

Freeier, please can you explain a bit more why HKD will be forced to depeg against HKD once RMB gets to a certain level, as you wrote earlier?

Originally Posted by freeier

a few comments:
RMB/HKD > my view is, RMB will be the first to appreciate. maybe by up to 10%. HKD will be forced to depeg against USD and peg to RMB once RMB crosses 7.7 or 7.6 level. so we do have 2 oppt to make money, hold RMB now then wait for the appreciation, then switch to HKD and wait for the depeg. but like mentioned, the interest rate differential is too huge. the hk banks are making tonnes of money out of it.

Thanks!

[freeier]

z75 > let's put it this way, pegging a currency to the USD is a convenient way to maintain currency stability for small countries.
for hk, china, their foreign reserve is so huge nobody in the right frame of mind (i.e. the george soros type) will want to attack the currency. so the existing peg is more to weaken the currency for better trade/export more than anything.

so in the event as the market speculated, that central bank of china decides to sell all their USD treasury holding and weakens USD, the only logical thing for HKSAR to do is to depeg itself against USD and peg it to RMB. In the first place, HK is part of china, and the growing amount of trade makes it all the sensible for their currency to be pegged to the country that they trade the most with..

so that's how most of us draw the conclusion that sooner or later HKD will be depegged from USD and pegged to RMB, and prob eventually just merged with RMB as a currency.

[z754103]

Oh, I see, now I have a better idea of the reasoning, thank you. There are still a couple of things that are confusing me though...

Originally Posted by freeier

z75 >
so in the event as the market speculated, that central bank of china decides to sell all their USD treasury holding and weakens USD, the only logical thing for HKSAR to do is to depeg itself against USD and peg it to RMB. In the first place, HK is part of china, and the growing amount of trade makes it all the sensible for their currency to be pegged to the country that they trade the most with..

so that's how most of us draw the conclusion that sooner or later HKD will be depegged from USD and pegged to RMB, and prob eventually just merged with RMB as a currency.

I don't get the thinking of the bank of china. why would it weaken the USD, wouldn't that cause losses on what they're holding? And wouldn't it hurt the chinese trade, for the reasons you described earlier?

If the HKD is now pegged to USD, which gets weaker against China, why would it be good for HK' s trade to move to a Chinese peg?

Thanks for sharing your experience on this thread!

[freeier]

as of now in the world, america is the largest debtor to everyone else. they issue zillions or US treasury notes/bonds/bills that are purchased by the other central governments. many of them too concentrated in US Trsy.

once people think that USD is not going to hold out, the logical way is to diversify their holdings and go into gold/EURO/etc. so that might cause a spiral effect leading to more people wanting to get rid of US trsy.

china have known that there is a need for them to rebalance the trade equation. yes, as of now its good for them to have a weak currency and peg to the USD. but so would mean their purchasing power is weak and sooner or later they wld want to expand their global presence and strengthen their currency.

on the other hand, for HK, while having a weak currency is still ok, if RMB is to appreciate against the USD too much (e.g. 15~20%, and that is more likely USD weaken versus RMB strengthen), HK can still choose to maintain their currency peg to USD but the basis to do so is much weaker. its silly to peg your currency to a foreign nation and not your own 'hq'... then likelihood is they either free up the currency or they peg it to the big brother.

no hard and fast rule, but that's just how logically things wld move in some of our perspective. from maybe economical or financial viewpoint.

[connecta]

that was a pretty good summary of freeier.

just one more comment to make it more clear on why the USD might not hold out: it's usually the supply and demand influencing the market prices. so if the US federal reserve is for example increasing the interest rates, then more investors are willing to put their money into the USD as they want to earn more interest, which causes appreciation of the USD in simple terms, because the demand for USD increased.

but for several years already, the current US economy has become 'instable' in the eyes of analysts. so other central banks like the one of china are thinking of more diversification to protect their reserves. china is the worldwide largest creditors of usa by having bought incredible amounts of US bonds etc. in the past (US$925+ billion!) to artificially keep the USD high so that chinese goods/labour etc. in RMB were cheap for their main trading partner usa. so just imagine if china as largest creditor would only sell 10% of its USD reserves to shift in EUR, gold or whatever, then the market could get into stampede and follow selling their USD holdings as well. that's the spiral effect freeier mentioned.

probably it won't happen that fast, as china is well aware of their own risk, but don't want to shoot into their own foot by causing trouble to the whole economy of their largest trading partner usa. so i hope at least that every of their actions will be very delicate. but as you can see, it suddenly can happen that even usually pretty safe fixed interest in USD for several years could bear a risk, if the purchasing power of the USD would depreciate and that for everything you want to buy in USD costs suddenly 10% or more, although you only had earned 5% interest per year.

if freeier is right and the HKD would then peg to the RMB, then having fixed interest, bonds etc. in HKD might be safer than in USD. a lot of things can happen in the next 5 years and the risk for a huge USD depreciation has become much higher than a few years ago. on the other hand it can be as well, that suddenly the US is solving all their economic problems, but the chances for that are not that high currently.

[freeier]

yap. agree with connecta.

so i shld add a caviat, whatever i have commented is not something that will happen. its just something that we think have a decent chance of happening.

some extra foods for thoughts, investing in the current market (Equity worldwide) is not considered a very good deal now. why -->

for many years, hedge funds and watever funds/investors have been doing spread trades. they borrow JPY, at almost 0% interest rates (e.g. 0.5%) and they either put the money into USD or they invest in all the different equity all over the world.

now that japan government has decided the zero interest rate policy is finishing, those people that borrowed chunks of money would have to unwind their trade. to do so, they are selling their assets world wide. that could be one reason why the world equity market is in doldrum these days. everytime there is a rally people wld sell it down.. and yet the sellings are not desperate.

the interest rate increase is gradual. and for these spread trades there is always a pain threshold how much you can take higher rates. so for the next 2 years as the JPY rates increase, do expect alot of volatility in the world market.. and prob also expect USD to weaken as that is one big chunk of asset held by such spread traders.

but saying that, as hedge fund managers return back the JPY loans, the japanese banks suddenly are flushed with cash and they have to start purchasing assets to maintain their ROE.

where is the equilibrium, that's the million dollar question. nobody has any answer. everybody has some theories.. 8-) that's also part of the reason why i cut down on my participation in equity market as i told chris...

[alfalfa]

anyone making any currency margin trading?

[1K1]

I think before investing in anything, it is important to keep in mind that BIG NAMES does not always equal to good custom services. Big names such as HSBC does not offer flexible reporting systems. For example, if you buy an investment wrapper, insurance policy. I know this because I have someone in the office who is ex. HSBC sales manager, who left because of the long working hours, and crazy admin . 1million is a large sum. Should seek as much professional advice as you can before committing!