Big funds involved in recent currency attack<\/p>\n
KUALA LUMPUR (Reuter): Malaysian Prime Minister Mahathir
\nMohamad blames U.S. financier George Soros for the recent chaos
\nin Southeast Asian currencies, but analysts say many other big
\nfunds were also involved.<\/p>\n
Many of the 2,000-odd hedge funds in the United States \"jumped
\non the bandwagon\" when selling of Southeast Asian currencies
\nstarted over two months ago, the analysts said.<\/p>\n
Soros has denied recent involvement. He said in early August
\nthat he sold only US$10 million worth of baht in the previous two
\nmonths and did not sell any other regional currency.<\/p>\n
Apart from Soros' Quantum group of funds and the Soros Fund,
\nthe big names heard in the market are funds such as Tiger, Orbis,
\nPuma, Panther and Jaguar, analysts said.<\/p>\n
According to an estimate by Van Hedge Fund Advisors in the
\nU.S., around 2,300 funds on its database control over $100
\nbillion in assets.<\/p>\n
\"Some of these funds have never heard of Singapore, Thailand
\nor Malaysia before, but a few used to the region must have said
\nthese currencies will yield higher returns, so they all jumped on
\nthe bandwagon,\" said a Singapore-based analyst.<\/p>\n
Hedge funds are private investment partnerships with wide
\nlatitude to invest across a variety of financial markets,
\nfrequently using borrowed money and derivatives.<\/p>\n
Rough estimates put the recent selling of Southeast Asian
\ncurrencies by hedge funds alone at $10 billion to $15 billion
\nworth.<\/p>\n
\"The fact is that the central banks of Malaysia and Thailand
\nalone have sold nearly $8 billion to defend their currencies. So
\nthese are good estimates,\" the Singapore-based analyst said.<\/p>\n
The funds started selling the Thai baht, then moved to the
\nPhilippine peso, the Malaysian ringgit, the Indonesian rupiah and
\nfinally to the Singapore dollar.<\/p>\n
The currency selling forced Thailand and the Philippines to
\nundertake de facto devaluations of their currencies, Indonesia
\nwidened the rupiah's trading band and Malaysia and Singapore
\nallowed their units to slide.<\/p>\n
Said to be inherently risky, hedge funds mostly operate from
\nthe U.S. in an extremely liberal regulatory environment.<\/p>\n
As one dealer with a foreign exchange broker said: \"They can
\ninvest in anything under the sky, there are no guidelines binding
\nthem; one day it could be commodities, the next energy, equities,
\nderivatives or foreign exchange.\"<\/p>\n
\"These are people only answerable to their shareholders. Most
\nof these guys are experienced people, who know how to deal with
\ncentral banks. So when Malaysia announced restrictions, they were
\nwell prepared, well hedged,\" he said.<\/p>\n
Malaysia last Sunday announced that local banks will limit
\ntheir non-trade related currency swap exposure to $2.0 million
\nwith each foreign customer, effectively restricting the supply of
\nringgit for speculative purposes.<\/p>\n
These funds have grown at an explosive rate in the last few
\nyears as U.S. investors, who earlier invested in mutual funds,
\nlooked for a diversified portfolio giving them higher returns
\nunder one roof, analysts said.<\/p>\n
These funds usually promise much higher returns than other
\ninvestments, which forces them to be speculative in nature.<\/p>\n
\"What the hedge funds (specializing in currencies) do is try
\nto identify (a) mismatch between economic fundamentals and
\ncurrency levels. They saw that baht was grossly overvalued, so
\nthey all piled on it until the Thai government relented,\" said an
\nanalyst with a European research house in Singapore.<\/p>\n
\"These funds could be acting in concert. They usually share a
\nview on countries,\" said the brokerage dealer.<\/p>\n
\"It is like a roundtable. If you are in a financial center
\nlike Singapore, through which most of these hedge funds operate,
\nyou will realize along the way that all of them are linked in one
\nway or another,\" the first Singapore-based analyst said.<\/p>\n
The hedge funds usually have financial strength well beyond
\ntheir means. They deposit their funds in margin accounts with
\nbanks. The banks then, depending on the fund operator's credit
\nrating and track record, gives them access to credit which could
\nbe a multiple of between 10 and 30 times their deposits.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/big-funds-involved-in-recent-currency-attack-1447893297",
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