CONFIDENTIAL
49
055526
MDHIAN 2860
HKB 020/26
PY
ST?
14 AUG 1990
CSK
CONFIDENTIAL
FM HONG KONG
TO IMMEDIATE FCO
TELNO 2500
RECEIVED
OF 11050OZ AUGUST 9Ờ INDEX
PERSONAL FOR MARSDEN, HKD FROM ACTING GOVERNOR
YRTELNO 1514:
(a)
FREEZING OF KUWAITI AND IRAQI ASSETS: HENRY KESWICK
APART FROM THE POINT ABOUT OUR MARKET BEING DUE FOR A CORRECTION, IT WOULD BE WORTHWHILE MAKING THE POINT ABOUT ITS LIQUIDITY, AT TIMES OF MAJOR UNCERTAINTY THERE IS A TENDENCY FOR INVESTORS TO SEEK TO ENSURE THAT THEY HAVE A SUFFICIENT POOL OF LIQUIDITY TO MEET EMERGENCIES. THEY THUS TURN TO THE MARKETS WHERE THEY CAN MOST QUICKLY TURN SHARES INTO CASH. WITH ITS ONE- DAY SETTLEMENT SYSTEM (T PLUS 1) HONG KONG IS PARTICULARLY ATTRACTIVE IN THIS RESPECT (LONDON FOR INSTANCE, APART FROM FOR GILT-EDGED, HAS A T PLUS 10 TO T PLUS 14 SETTLEMENT SYSTEM, NEW YORK T PLUS 5, SINGAPORE T PLUS 5 AND TOKYO T PLUS 4).
THERE IS A FURTHER POINT WORTH DRAWING TO YOUR ATTENTION, THOUGH YOU MAY WELL FEEL THAT IT CANNOT BE DISCLOSED ON CONFIDENTIALITY GROUNDS. AS WE POINTED OUT EARLIER, MOST OF THE LOCAL SELLING BY KUWAITI INTERESTS SEEMS TO HAVE EMANATED FROM
THE KUWAIT INVESTMENT OFFICE (KIO) IN LONDON AND WE HAVE NO
REASON TO BELIEVE THAT THIS WAS WITH THE OBJECTIVE OF TRANSFERRING FUNDS EITHER TO IRAQ OR THE PUPPET GOVERNMENT OF
KUWAIT. THE OBJECTIVE OF THE FREEZE IS TO PREVENT FUNDS GETTING INTO THOSE HANDS, NOT TO PROTECT STOCK MARKETS AND THAT PRESUMABLY IS WHY THE BANK OF ENGLAND HAS NOW INDICATED THAT IT IS PREPARED TO ALLOW DISCRETIONARY MANAGERS TO CONTINUE THE ACTIVE MANAGEMENT OF KUWAITI PORTFOLIOS AND, ACCORDING TO PRESS REPORTS, KIO ITSELF WILL BE GRANTED PERMISSION ON A CASE BY CASE BASIS TO BUY AND SELL SHARES.
·
YOU MAY ALSO LIKE TO BE AWARE THAT WE DISCOVERED YESTERDAY THAT THE PORTFOLIO MANAGEMENT ARM OF JARDINE MATHESON GROUP WHICH MANAGES A PORTFOLIO FOR THE KUWAIT INVESTMENT AUTHORITY, CONTINUED BUYING AND SELLING STOCKS FOR THE PORTFOLIO EVEN AFTER OUR FREEZE WAS IN PLACE. IT HAD ASSUMED, WRONGLY IN OUR VIEW, THAT THE FREEZE ORDER DID NOT COVER SUCH ACTIVITY. IT FOLLOWS FROM THIS, OF COURSE, THAT EVEN HAD THE FREEZE BEEN IN PLACE HERE
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