GR 750
CONFIDENTIAL
DESK BY 23110OZ
CONFIDENTIAL
FM HONG KONG 23100OZ SEP 83
TO IMMEDIATE SINGAPORE (FOR PS/MR LUCE)
TELEGRAM NUMBER 36 OF 23 SEPTEMBER
INFO IMMEDIATE FCO, PEKING
FOR PS TO MR LUCE.
THE FUTURE: HONG KONG DOLLAR AND STOCK MARKET.
FCO TELNO 934.
Ad
HKK
027120
REOLVED IN NOM
1. AT THE CLOSE ON 23 SEPTEMBER, THE HONG KONG DOLLAR/US DOLLAR
EXCHANGE RATE WAS DOLLARS 8.73. ON THE SAME DAY IN 1982 THE RATE
WAS DOLLARS 6.12. THIS REPRESENTS A DEPRECIATION OF OVER 42.5
PERCENT. THE TRADE WEIGHTED EXCHANGE RATE INDEX NOW STANDS AT
62.6 REPRESENTING A FALL OF NEARLY 28.3 PERCENT COMPARED WITH
87.3 ON THE CORRESPONDING DAY IN 1982. (THE EXTENT OF THE
DEPRECIATION WAS PARTICULARLY SHARP IN OCTOBER LAST YEAR, IN JUNE THIS YEAR AND IN THE PAST WEEK. IN THE WEEK ENDING 23 SEPTEMBER, THE HONG KONG DOLLAR DEPRECIATED AGAINST THE US DOLLAR FROM AN EXCHANGE RATE OF 7.375 TO 8.73, A FALL OF 10.8
PERCENT. THE TRADE-WEIGHTED INDEX BEHAVED SIMILARLY).
2. THE HANG SENG INDEX HAS ALSO DECLINED SHARPLY. ON 1
JUNE 1982, IT STOOD AT 1404: BY THE CLOSE TODAY IT WAS DOWN TO 786 (A DECLINE OF NO LESS THAN 63 POINTS ON THE PREVIOUS DAY'S TRADING).
3. THE HONG KONG DOLLAR'S WEAKNESS OVER THE PAST YEAR HAS PARTIALLY
REFLECTED THE STRENGTH OF THE US DOLLAR WORLDWIDE, BUT REAL CONCERN ABOUT THE POLITICAL FUTURE, AND A RESULTING MOVE OUT OF THE HONG KONG DOLLAR, ARE CHIEFLY TO BLAME. THIS WEAKNESS IS TOTALLY OUT OF LINE WITH THE UNDERLYING ECONOMIC FUNDAMENTALS WHICH INDICATE A
FAIRLY STRONG EXPORT-LED RECOVERY. HOWEVER, THE CHINESE PROPAGANDA CAMPAIGN HAS SOUGHT TO ESTABLISH THAT THE WEAKNESS OF THE HONG KONG
DOLLAR IS AN ECONOMIC PHENOMENON AND NOT A FOLITICAL ONE. FURTHERMORE, CHINESE OFFICIALS AND COMMUNIST NEWSPAPERS HAVE ACCUSED THE HONG KONG GOVERNMENT OF ENGINEERING THE WEAKNESS IN THE HONG KONG DOLLAR WITH THE AIM OF ENHANCING BRITAIN'S
NEGOTIATING POSITION. THEY HAVE IMPLIED THAT IT WOULD BE AN EASY
TASK TO STABILISE THE EXCHANGE RATE IF THE GOVERNMENT WISHED TO
DO SO.
4. THE HONG KONG GOVERNMENT, THROUGH THE EXCHANGE FUND, IS DOING WHAT IT CAN WITHIN ITS POWERS TO SMOOTH OUT EPRATIC AND WAYWARD SHIFTS IN THE EXCHANGE RATE. THERE HAS BEEN SUBSTANTIAL DIRECT
INTERVENTION IN THE FOREIGN EXCHANGE MARKETS IN HONG KONG, AT TIMES EXTENDED INTO LONDON AND NEW YORK. (THIS INFORMATION SHOULD NOT BE REVEALED TO THE PRESS AS OUR POLICY IS NOT TO PROVIDE SUCH INFORMATION). THE EXCHANGE FUND HAS ALSO BEEN ACTIVELY BORROWING
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