TNAG-2027-FCO40-2889-Hong-Kong-freezing-of-Kuwaiti-and-Iraqi-assets-1990 — Page 8

11073/

REFERRED TO MS MARSDEN HKD FOR DISTRIBUTION

LNMDAN 6345

HMLNAN 5739

CONFIDENTIAL

00 FCOLN

FM HOKON TO FOOLN

1105007 AUG

GRS 963

CONFIDENTIAL

FM HONG KONG

TO IMMEDIATE FOO

TELNO 2500

OF 11050OZ AUGUST 90

PERSONAL FOR MARSDEN, HKD FROM ACTING GOVERNOR

YRTELNO 15141 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, YORK T PLUS 5. SINGAPORE T PLUS S AND TOKYO T PLUS 4).

NEW

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, KID 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 EARLIER IT WOULD NOT HAVE AVAILED IN STOPPING SALES FROM THIS PORTFOLIO EXCLAMATION.

TURNING TO HENRY KESWICK'S ALLEGATIONS OF EXTRA- TERRITORIALITY, I THINK WE SHOULD STRESS ONCE AGAIN THAT WE DO NOT ACCEPT THAT ANY RESTRICTIONS THAT HAVE BEEN PLACED ON THE ACTIVITIES OF OVERSEAS REGISTERED COMPANIES VIA THE STOCK