Hong Kong in big futures buy

THE Hong Kong government has revealed that it intervened to an unprecedented extent in the local futures market last August as part of its bid to thwart what it believed were speculative attacks on the Hong Kong stock market and dollar.

After three months of silence, the Hong Kong Monetary Authority (HKMA), which acts as a central bank, disclosed to The Independent on Sunday details of its dramatic actions.

The HKMA purchased a total of 47,111 Hang Seng Index (HSI) futures contracts and 1,100 options contracts. The authority cannot say how much it spent in this operation but it is estimated that some HK$4bn (pounds 313m) was laid out on the initial margin payments required to take these positions.

The purchases were made over a number of days but were so large that they are equal to something like the total volume of trading in these contracts over a three-day period.

Last month, the government disclosed its holdings in the stock market, which were purchased for a total of HK$15bn, making it the largest share purchase in a local stock market by any government.

However, for reasons which remain unclear, the Hong Kong government refused to disclose the position it had taken in the futures market.

A spokeswoman for the HKMA said: "The government's trading in the futures market in August was part of open market operations to frustrate the double play by manipulators. The objective of the operations was to protect the stability and integrity of the monetary and financial systems."

She said that these positions have now been liquidated and no new contracts have been acquired. In late August, the government bought 36,935 August HSI futures contracts, 10,176 September HSI contracts and 1,100 August options contracts.

The aim was to thwart what the government alleges was a speculative attack on the Hong Kong stock market and dollar by international hedge funds. Joseph Yam, the head of the HKMA, said that the funds had amassed more than HK$30bn in currency borrowings and had an estimated 80,000 short contracts on Hong Kong shares. He said that for every 1,000-point fall in the Hang Seng Index they stood to make a profit of HK$4bn.

Mr Yam said the hedge funds picked August as the best time to launch their attack because volumes were low and market sentiment was weak.