Monday, November 30, 2015   

Soros manager regrets attack on HK dollar

Amy Nip

Thursday, July 05, 2007

An asset manager who represented George Soros, one of the predatory speculators who laid siege to the Hong Kong dollar and attempted to manipulate the stock and futures markets, has admitted making a blunder.

In an interview with mainland paper China Business News, Rodney Jones, the former managing director of Soros Fund Management in Hong Kong, admitted: "We made a mistake."

He said Wednesday the markets could have collapsed, "if the Hong Kong government hesitated any longer."

For two weeks beginning August 12, 1998, the Hong Kong Monetary Authority with the support of then financial secretary Donald Tsang Yam- kuen, waged war on currency speculators who were making a double play of dumping the Hong Kong dollar and shorting local stocks and Hang Seng Index futures.


In the end, the speculators were literally caught short with their short positions on HSI futures and short positions on the currency.

Soros and his flagship Quantum Fund bet heavily that Hong Kong would end up on bended knee, but it was not to be.

In 1996, Jones was stationed in Hong Kong and was researching Southeast Asian markets. He said he noticed the asset price bubble in the real estate market and yet banks continued to lend to developers who had difficulty paying interest on loans. In the circumstances, Jones said he recommended to Soros that he short-sell the Thai baht.

"We started preparations six months beforehand and built short positions gradually," he told the paper.

In January 1997, Soros and other global hedge funds began dumping baht in large quantities, putting the exchange rate under immense pressure.

"Capital started to flow out of Thailand in May and Thailand imposed capital controls," he recalled. "But at that time, we already knew the baht could not hold."

At the time, the Thai economy was in trouble, exports had slumped, there was excessive investment and the country was grappling with a yawning current account deficit. Speculators smelled blood, believing the baht was overvalued.

Hedge funds launched a second assault on the baht in June that year.

With forex reserves depleted, the Bank of Thailand caved in and devalued the currency. After causing immense grief and turmoil in Southeast Asia, with the poor hit the hardest, Soros set his eyes on Hong Kong.

Jones said there was a bubble in the stock and property markets at the time, "although not as bad as in Thailand."

He added: "And we thought in the beginning that the cost of maintaining the linked exchange rate would be too high for the Hong Kong government."

The funds mounted a three-pronged assault on the currency, futures and stocks.

But then they came up against a well-prepared HKMA, which left greedy speculators with a bloodied nose. Hong Kong intervened in the markets, although there was concern in some quarters that the government had dipped into the Exchange Fund.

In hindsight, Jones, said he felt otherwise.

"Government intervention raised public confidence in the market when it was near total collapse. It prevented a bigger crisis and saved the market."

Tsang declared at the time: "We have frustrated their plan. We are absolutely determined to use all means available to us to protect the stability and integrity of our currency and financial markets."

Even the Bank of China supported the counterattack on speculators.

Tung Chee-hwa, the chief executive at the time, warned speculators saying: "We will continue to do what is necessary."

Jones said: "We used to doubt if the HKSAR government's intervention would be effective or not, as timing and choice of strategies were of crucial importance. From what we see now, the HKSAR government chose the right time to intervene. We made a mistake at the time."

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