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How Tiger Fund attacked Hong Kong

Tiger Fund in 20 The global macro investment strategy for most of the 1990s was: shorting the Japanese stock market and the yen, and shorting the Southeast Asian stock market and its currencies.

Hong Kong is the last link

The latest round of Asian financial crisis that started in 1997 is long gone, but it has never really gone away.

Hong Kong’s linked exchange rate system (every 7.8 Hong Kong dollars issued requires a US$1 foreign exchange guarantee) was in turmoil in 1998. Finally, the Hong Kong SAR government tried its best to keep the city intact; but in three years Later, Argentina, one of the few countries in the world that still implements the linked exchange rate system, finally announced that it would abandon the currency board (a type of linked exchange rate system) system at a time of internal and external difficulties. This has to make people think again about the changes in the Hong Kong dollar linked exchange rate system. high costs in the global financial system.

Another lesson from the 1997 financial crisis is that the free flow of capital and asset bubbles may stimulate each other in the short term, but they will never survive in the long term. In an open international financial system, asset bubbles will eventually be forcibly burst if they cannot deflate themselves. Those responsible for this function in 1997 and 1998 were hedge funds, especially macro hedge funds headed by Quantum Fund and Tiger Fund.

For China, which has chosen to integrate into the international economic and financial system, these are very recent and necessary reflections. Against the background of these reflections, this magazine specially invited Mr. Pan Ming to give a highly professional interpretation of the entire process of the macro-hedge fund's attack on the Hong Kong pegged exchange rate system in 1998, which gained significance.

Pan Ming was born in Shanghai and has worked in the investment banking industry in Hong Kong for many years. He has worked for the US-owned Citibank, Singapore Development Bank DBS Securities, Hong Kong-owned Peregrine Securities, Thai Capital Nawa Securities, and the US-based Citibank. Zipeiji Securities has served as an economist, senior economist, chief economist of the Greater China region and director of the China Equity Research Department in the above-mentioned institutions. After 1997, he had a lot of contact with macro hedge funds such as Tiger Fund. He has personal knowledge of the process before and after the hedge fund attack on Hong Kong. ——Editor

First visit to Tiger Fund

I had a vague feeling that hedge funds had set their sights on Southeast Asia, especially Thailand; but I never expected that a financial war sweeping Southeast Asia was about to begin. Raising the Curtain

In 1997, I served as Chief Economist for Greater China and Head of China Equity Research at Nava Standard Chartered Securities. Nahua Securities is Thailand's largest securities company, and its major shareholder is Thai Military Bank. Nahua just acquired Standard Chartered Securities, a subsidiary of Hong Kong-based British-owned Standard Chartered Bank, just a few months ago. At the peak of Southeast Asia's economic boom, its goal was to become Asia's largest securities house - Hong Kong's Peregrine Securities was not the only one with this goal at the time (Peregrine was Hong Kong's largest and most successful local securities company at the time, went bankrupt in early 1998). After acquiring Standard Chartered Securities, Nav China Securities retained all of Standard Chartered Securities' network, including its offices in the United States, the United Kingdom and mainland China.

In February and March of 1997, my colleagues and I went to New York, USA, to conduct a roadshow on Asian investment strategies. A visit to Tiger Management LLP was one of the important items on the agenda.

Tiger Fund is one of the most famous macro hedge funds, on par with Soros Quantum Fund. Julian Robertson, the founder of Tiger Management, is a man of the hour on Wall Street.

He was born in a small town in the southern United States. After graduating from the University of North Carolina Business School, he worked at Kidder Peabody Securities for 20 years. In May 1980, he founded Tiger Fund, focusing on "global investments." After a 10-year hibernation period, in the late 1980s and early 1990s, Tiger Fund began to achieve astonishing results - Julian accurately predicted that the German stock market would enter a bull market after the fall of the Berlin Wall, and at the same time shorted the Japanese stock market where the bubble had reached its peak. (Short selling refers to borrowing stocks first, then selling them, and then buying them back when the stock price drops to a certain level to earn the difference). After 1992, he foresaw a disaster in the global bond market. As these predictions were realized one by one, Tiger Management's assets under management increased rapidly after the 1990s, from US$8 million when it started in 1980 to US$1 billion in 1991 and US$7 billion in 1996. , until its peak of $20 billion in mid-1998.

Tiger Fund's "global investment" includes two aspects: first, stock investment, whether it is short selling or buying, Tiger Fund's basic requirements for investment objects are good liquidity and the ability to provide more than 40 annual return; on the other hand is speculation on global currency interest rates and exchange rate trends. It was this aspect that made them fearful of central banks throughout the 1990s when currency crises were occurring one after another.

The reason why Tiger Management achieved outstanding results in the 1990s was largely due to the fact that Julian Robertson spent heavily on recruiting first-class analysts from Wall Street, which often enabled him to respond at turning junctures in the financial market. Bet in the right direction. Most hedge funds will not have many analysts, often relying on the securities analysis muscle of investment banks. This is different for large-scale hedge funds like Tiger Management, whose star analysts are paid far more than their counterparts working in investment banks.

On the day we visited Tiger Management, those present included its partners in charge of macroeconomic and currency investments, its head of investment in emerging markets, and analysts tracking the Thai market. The topic they are most concerned about is, as Thailand's largest securities company, what Nahua's views are on Thailand's real estate market and financial system, especially whether the Central Bank of Thailand will devalue the Thai baht - at that time, the Thai baht was pegged to the U.S. dollar, and 1 U.S. dollar was exchanged for about 25 Thai Baht.

What we all agree on is that there is no doubt that the economy of Southeast Asia, especially Thailand, is overheating. For example, when Nahua Securities was listed in Thailand, its market value in U.S. dollars was close to that of Morgan Stanley, one of the largest investment banks in the United States! It can be seen that the bubble economy has reached an alarming level.

Thailand’s economy is not my expertise, but back in late 1996, my friend and former colleague Chris Wood (who I served as chief economist for Greater China at Peregrine Securities, who at the time was PAX (Chief Strategist at Qin Securities) alerted me to the deterioration of Thailand’s trade account as the U.S. dollar continued to appreciate against the yen, making the baht pegged to the U.S. dollar stronger. At the same time, the bad debt problem in Thailand’s banking system, which was covered up by the real estate market bubble, is very serious. Thailand's economy is highly dependent on the inflow of foreign capital, especially Japanese capital, which has stimulated the rise of the stock market and real estate market. However, as Thailand's import and export deficit continues to rise, the bubbles in the stock market and real estate will burst sooner or later.

In 1996, there were houses equivalent to US$20 billion unsold in Bangkok alone, and the collapse of real estate prices was inevitable. Worryingly, real estate-related loans account for 50% of total banking industry loans. By 1997, more than half of all real estate-related loans were bad! Japan's economic recession has also seriously affected Thailand. On the one hand, Japanese capital has withdrawn from Thailand in large quantities. On the other hand, Thailand's trade exports to Japan have been significantly reduced, and the trade account has worsened.

The risk of the Thai baht devaluing is already great, but the key is, will the Central Bank of Thailand let it depreciate? In response to a question from someone at Tiger Management, my colleague Jan Lee responded: The Bank of Thailand will never automatically devalue the baht because they have to consider politics. Jan Lee once served as chief economist of HSBC Holdings Hong Kong. Tiger's audience disagreed.

During the dinner, a Tiger Fund analyst left the meeting midway because he had to catch a flight to Thailand for an on-site inspection.

I had a vague feeling that hedge funds had set their sights on Southeast Asia, especially Thailand; but I never expected that a financial war sweeping Southeast Asia was about to begin.

Background: The depreciation of the Thai baht

In May 1997, international currency speculators (mainly hedge funds and multinational banks) began to short-sell the Thai baht on a large scale. Hedge funds were shorting the baht's forward rate, while multinational banks were selling the baht in the spot market.

There are three steps for speculators to short-sell the Thai baht: borrow Thai baht at the Thai baht interest rate; sell the Thai baht in the spot market and exchange it for U.S. dollars; and lend the exchanged U.S. dollars at the U.S. dollar interest rate. Speculators will profit when the Thai baht depreciates or the interest rate differential between the Thai baht and the US dollar widens.

At the beginning, the Central Bank of Thailand and the Central Bank of Singapore jointly entered the market and took a series of measures, including using US$12 billion to absorb Thai baht, prohibiting local banks from lending Thai baht to speculators, and significantly raising interest rates to increase speculators' funds. borrowing costs, etc.

But attacks on the Thai baht exchange rate came in waves. Currency speculators are selling the baht frantically, with the baht's forward exchange rate against the U.S. dollar hitting record lows. On June 19, 1997, Finance Minister Ara Wirawang, who firmly opposed the devaluation of the Thai baht, resigned. Due to concerns about exchange rate depreciation, the interest rate of the Thai baht rose sharply, the stock market and real estate market plummeted, and the whole of Thailand was shrouded in panic.

The information coming from the headquarters of Nahua Securities in Thailand is very bad - a considerable number of banks and financial institutions (trust companies, financial companies) are already in a state of technical bankruptcy. Senior executives at Nahua Securities headquarters began to worry about whether the company would be reorganized or merged. On June 27, the Central Bank of Thailand ordered 16 financial companies with financial problems to cease operations and required them to submit restructuring and merger plans.

On July 2, after depleting US$30 billion in foreign exchange reserves, the Bank of Thailand announced that it would abandon the 13-year-old exchange rate system where the baht was pegged to the US dollar and implement a floating exchange rate system. On that day, the Thai baht exchange rate plummeted 20. The Asian financial crisis officially began. At this time, it was only two days after Thai Prime Minister Chavalit made a public speech on television vowing that the baht would not depreciate.

Revisiting Tiger Fund

Robert Citron told me that Julian Robertson, the head of Tiger Fund, "has noticed the Hong Kong market"

In 1997 In June, while Thailand was in dire straits, Hong Kong was still in the "prosperity" stage. The Hang Seng Index reached between 14,000 and 15,000 points, and red-chip state-owned enterprise stocks were extremely red. At the invitation of some mutual funds and hedge funds in the United States, I visited New York again to give a speech on Hong Kong's red-chip state-owned enterprise stock market. At that time, red-chip state-owned enterprise stocks were booming. In stark contrast to the booming speculation in the Hong Kong market, U.S. fund managers are acting quite sober. They are reducing their holdings of Hong Kong stocks, especially red-chip state-owned enterprises.

Tiger Fund Management's headquarters occupies the highest floors of a building next to Park Avenue in New York's famous financial district. The reception area stands out with a large tiger-themed carpet. In the large and simple office, through the surrounding glass walls, you can have a panoramic view of Lower Manhattan.

I told Robert Citron, head of emerging markets at Tiger Management, his views on the Hong Kong market and red-chip state-owned enterprises. I think investors should sell the Hong Kong stock market heavily. According to the Free Operating Cash Flow Model, I believe that the stock prices of most Hong Kong stocks deviate far from their intrinsic value. The China Securities Research Team of Navarra Securities strongly recommended selling red-chip state-owned enterprise stocks, and the real estate and banking research teams also issued recommendations to reduce holdings of real estate and bank stocks. At that time, the Hong Kong stock market was dominated by real estate and bank stocks, which accounted for the majority of the Hang Seng Index. Market value of nearly 70%.

At that time, the bubble in Hong Kong's stock and asset markets had reached its final and astonishing level of madness.

The following are some symptoms:

——The resale price of Zhang Xinlou’s subscription certificate reached HK$2.5 million;

——Any third- and fourth-tier stocks (junk stocks) are rumored to be red chips After the news of the corporate acquisition, the stock price soared by 100 to 200 that day;

——Among the top ten rising stocks every day, more than 70% are red-chip state-owned enterprise stocks;

——Red The surge in state-owned enterprise stocks and the surge in trading volume have greatly increased the demand for securities analysts working on red-chip state-owned enterprise stocks. The annual salary of a red-chip state-owned enterprise stock analyst who worked with me tripled in just one year to HK$1.5 million.

We believe that the crisis of bubble bursting is just around the corner. The stock prices of the vast majority of red chips with larger market capitalizations, such as SIIC, Everbright, Beijing Enterprises, Tianjin Development, COSCO International, and China Merchants, have reflected the rapid growth that may be maintained through capital injection activities in the next few decades, and such large-scale capital injection activities Almost impossible. In addition, investors have too high expectations for the management of red-chip companies. Most red-chip companies are group companies that operate a variety of businesses. It is unrealistic to expect red-chip "big classes" to quickly create value for shareholders. There is the learning process of the red-chip "big class", as well as the running-in and adaptation process within the group. In the West, investors are generally reluctant to buy shares of holding companies, and the price of holding company shares is often below their net asset value.

During the conversation, Robert Cetron kept taking notes. I saw his eyes turn green, like a shark smelling blood.

Robert Cetron told me that Julian Robertson, the head of Tiger Management, "has taken notice of the Hong Kong market" and believes that many stocks are trading for far more than their intrinsic value - The Hang Seng Index level at that time was about 14,000 to 15,000 points. The word "attention" has a profound meaning. For a man at the helm of a macro hedge fund with $10 billion under management, Julian Robertson searches for profit opportunities around the world every year. Large-scale fund operations require them to capture large enough trends and make major strategic investments. Investment opportunities in one or a few stocks often fail to arouse Tiger Fund's interest. Because even if individual stocks perform well, it is difficult to fundamentally change the overall performance of the fund. "Paying attention" to the Hong Kong market means that Hong Kong may become an important part of Tiger Fund's global investment strategy. In other words, Julian Robertson sees a potential trend in Hong Kong from which Tiger Fund will make huge profits.

Shortly after returning from New York, accompanied by me, the Tiger Fund team conducted an inspection of Hong Kong and the Mainland.

Shanghai is one of the stops on our mainland inspection trip. After visiting the Shanghai Shipyard (an H-share company listed in Hong Kong), Tiger Fund analyst Charles Anderson agreed with the analysis of red-chip state-owned enterprise stocks I made to them in New York. "This factory is not worth the money (share price) at all - the boats are rusty and the workers are chatting," Anderson said.

"This is our best short-selling target." Robert Cetron said. "What if you sell short but the stock price still goes up?" I asked. This situation often occurs, especially when many funds are chasing so-called "concept" stocks.

"We will short more!" Robert Cetron replied without any doubt.

At noon that day, Robert Cetron and I had lunch on the eighth floor of the Peace Hotel on the Bund. The weather was nice, and sitting by the window, we had a panoramic view of the Bund and Huangpu River.

Robert Cetron told me about his experience. Before becoming head of emerging markets at Tiger Management, he spent four years in charge of emerging investment markets at Fidelity, the world's largest fund company. He has experienced many major events that are famous in the world's financial markets, such as short selling the Japanese market in 1990 and short selling the Mexican peso in 1994. He told me an incredible thing: Tiger Fund began short selling the Japanese market in 1990, and until then, the stocks shorted that year still held short orders.

In January 1991, the Nikkei 225 reached a level of 39,000 points. By the time we were talking in Shanghai in 1997, it had fallen to 16,000 points, a plunge of about 60 points. Holding short orders for such a long time is really due to extraordinary boldness, determination and patience. There is no doubt that all this is based on high-quality macroeconomic and micro-enterprise research.

Another important deployment of Tiger Management is short-selling the Japanese yen. This is related to being bearish on the Japanese economy and short selling the Japanese stock market. Because the yen interest rate is close to zero, borrowing costs are extremely low. Tiger Management borrowed large amounts of Japanese yen from financial institutions, then converted the Japanese yen loans into U.S. dollars and used the U.S. dollars to purchase U.S. or Russian government bonds. At that time, the return rate on Russian government bonds was extremely high, with an annual return rate of 50% (the investment risk was also very high, and when the Russian government bond market collapsed in 1998, investors suffered heavy losses). This investment strategy is known as the "carry trade". If US dollars are used to buy US Treasury bonds, carry traders will make profits if the yen continues to depreciate against the US dollar, or if the US Treasury bond interest rate remains higher than the Japanese yen lending rate.

After the inspection, I returned to Hong Kong. In the following weeks, I had several discussions with Tiger Fund analysts about the Hong Kong stock market. I provided them with the analysis and original data of the stock price of red-chip state-owned enterprises by the China Securities Research Group based on the Free Operating Cash flow Model and the "Implied Surplus value" model. . We believe the stock price is overvalued by more than 50%. Tiger Fund researchers repeatedly verified the original data and came to the same conclusion.

Background: The October 1997 crisis

The flaws of the pegged exchange rate system were fully exposed in the two waves of shocks in August and October. The storm has come

After sweeping across Southeast Asia, the financial crisis began to hit Hong Kong.

As the currencies of various Southeast Asian countries have depreciated significantly, the Hong Kong dollar, which is pegged to the US dollar, has appreciated significantly in relative terms. From an empirical perspective, currency depreciation in emerging investment markets is contagious. Since the export goods structure of most emerging market countries is similar, there is the possibility of competitive currency devaluation (Competitive Devaluation). The currencies of neighboring countries have depreciated sharply, putting the Hong Kong dollar under tremendous depreciation pressure.

On August 14 and 15, 1997, the exchange rate of the Hong Kong dollar against the US dollar fell unusually and rapidly, and the forward exchange rate of the Hong Kong dollar also fell accordingly. Some hedge funds were found in the market to be short-selling the Hong Kong dollar. The Hong Kong Monetary Authority quickly counterattacked by raising bank loan interest rates, forcing banks to hand over excess positions and forcing currency speculators to close their positions at extremely high loan (speculation) costs.

In hindsight, this was a test for hedge funds. Although the Hong Kong Monetary Authority seems to have won the initial battle, the weaknesses of Hong Kong's linked exchange rate system pegged to the US dollar have been exposed: interbank interest rates have soared due to tighter monetary conditions.

Hong Kong’s exchange rate system adopts the linked exchange rate system, which is a form of the Currency Board System. The core of the currency board system is that when a country or region wants to issue a certain amount of local currency, the currency must be fully supported by foreign currencies of equal value before it can be issued. Taking Hong Kong as an example, the Hong Kong Monetary Authority stipulates that 1 US dollar is exchanged for 7.8 Hong Kong dollars. Correspondingly, every 7.8 Hong Kong dollars issued must be supported by 1 US dollar of foreign exchange reserves.

The linked exchange rate system was implemented on October 17, 1983. When Hong Kong's three note-issuing banks, HSBC, Standard Chartered and Bank of China, issue currency, they must deliver U.S. dollars to the Hong Kong Monetary Authority in exchange for a Certificate of Indebtedness (Certificate of Indebtedness) as a guarantee for the currency issued, based on an exchange rate of 1 U.S. dollar to 7.8 Hong Kong dollars. Similarly, the three note-issuing banks can exchange U.S. dollars with proof of liability.

The Hong Kong Monetary Authority assures the banking system that Hong Kong dollars held in the settlement accounts of all banks with the Hong Kong Monetary Authority are freely convertible at a rate of HK$7.8 per US dollar.

The linked exchange rate system has contributed greatly to Hong Kong’s currency stability for more than 10 years, but this system also has inherent flaws.

Although the cash in circulation in Hong Kong is backed by US$100 in foreign exchange reserves, this is not the case for bank deposits. The Hong Kong Monetary Authority will only allow note-issuing banks to issue HK$7.8 banknotes after receiving a US$1 pledge. On top of this monetary base, banks can create deposits at multiples through credit. In 1997, the total cash in circulation in Hong Kong plus various deposits exceeded HK$1.7 trillion, while the amount of foreign exchange reserves equivalent to HK$700 billion was less than HK$700 billion. Obviously, if Hong Kong people lose confidence in the Hong Kong dollar and demand to convert their Hong Kong dollars into U.S. dollars, the linked exchange rate system cannot be maintained.

Moreover, in the face of a real crisis, interbank market interest rates will soar because of the mechanism designed by the linked exchange rate system. The Currency Operations Board system cannot perform its automatic arbitrage function in times of crisis. Although the Hong Kong Monetary Authority stipulates that banks can lend Hong Kong dollars to it at an exchange rate of 7.8 Hong Kong dollars per US dollar, this is mainly limited to the three note-issuing banks. Even note-issuing banks are unable to borrow Hong Kong dollars from the Hong Kong Monetary Authority through the Liquidity Adjustment Facility frequently and on a large scale to avoid being warned by the Monetary Authority about interest penalties. For other non-note-issuing banks, the interbank lending market is close to paralysis. The entire financial system will be difficult to operate, and the stock market will also face the risk of a sharp decline.

In late October 1997, large-scale short selling of Hong Kong dollar futures was seen again in the market. The Hong Kong dollar forward exchange rate risk premium rose sharply, thus driving up the interbank discount interest rate. In order to severely discourage foreign exchange speculators, the Hong Kong Monetary Authority tightened monetary policy, and the interbank lending rate once soared to 300 (on an annualized basis) that day. Although high interest rates have increased the costs for foreign exchange speculators, they have also hit the stock market hard. The market was flooded with selling orders. In late October 1997, the Hang Seng Index plummeted by more than 4,000 points. On October 28, it set a record of more than 1,400 points a day, a drop of 13.7 points.

After October, hedge funds turned their main attention to Latin America and South Korea, and the Hong Kong stock market experienced a period of unexpected calm. However, the flaws of the linked exchange rate system have been fully exposed in the two waves of shocks in August and October. The storm has come.

The two indicators that Tiger Fund is most concerned about

The number of tourists visiting Hong Kong and the investor overdraft rate are the two indicators that Tiger Fund is most concerned about. The former is regarded as a leading indicator of Hong Kong’s economy. , and the latter is regarded as a reverse indicator of the stock market trend

At the beginning of 1998, I left Nahua Securities and moved to Prudential Securities in the United States as the chief economist of the Greater China region and China stock research. Department manager.

From January to February 1998, the market remained calm on the surface. I still keep in touch with Tiger Management. They pay close attention to changes in many important economic and market indicators in Hong Kong, with special emphasis on the two indicators of visitor arrivals and investor overdraft rate (Margin Debt Ratio).

Originally, for me, the number of tourists visiting Hong Kong is just one of the dozen comprehensive indicators that need to be observed to track Hong Kong’s economy and market. However, under the influence of Tiger Fund, I found that the number of tourists visiting Hong Kong Tourists have a huge impact on Hong Kong’s economy.

Tourists visiting Hong Kong are directly related to Hong Kong’s foreign exchange earnings, and foreign exchange earnings are the raw materials for Hong Kong’s currency issuance. According to my personal statistics, the tourism industry accounts for more than 40% of Hong Kong's Export of Services, which plays an important supporting role in stabilizing the linked exchange rate system.

The consumption of tourists visiting Hong Kong contributes significantly to Hong Kong’s GDP. On the surface, according to statistics from the Hong Kong Tourism Association, the consumption of tourists visiting Hong Kong contributes 6% to GDP; but if one considers its indirect multiplier effect on the economy, according to my estimation, its contribution to GDP is no less than 12.5%.

In addition, tourists visiting Hong Kong are also a leading indicator of the economy. The trend of retail sales (Retail Sales), another important economic activity indicator, can be basically inferred from the number of tourists visiting Hong Kong. The correlation between the two is very high.

Another important indicator that Tiger Fund focuses on is the investor’s overdraft rate (investor’s overdraft amount/investor’s total investment). Since the Hong Kong Stock Exchange does not have official statistics in this regard, I can only make an estimate of the overall market situation based on data from Peak Securities. Investors' overdraft rate can indicate the excitement level of the stock market. For example, during the peak period of the Hong Kong stock market in the first half of 1997, investor overdraft rates were very high. The financing ratio of blue-chip stocks is about 70 to 80, and the ratio of red-chip state-owned enterprises and even third- and fourth-tier stocks is also 50 to 60.

Securities companies are usually very willing to provide investors with stock financing services because the marginal profit margin is very high. The lending rate to customers is often the best interest rate plus three percentage points, because their borrowing costs are inter-bank lending. Interest rates and spreads can be as high as 5 to 8 percentage points.

Generally speaking, when the overdraft rate reaches an extraordinary level, a stock market adjustment may not be far away. Therefore, the overdraft ratio is a contrary indicator. From the empirical data, investors' overdraft interest rates reached a high point before each stock market bubble burst in the United States.

More importantly, an excessively high overdraft rate will accelerate the stock market adjustment. For example, when interest rates rise, stock prices will tend to fall, and securities companies will require customers to make additional margin calls, forcing a large number of customers to liquidate their positions, exacerbating the decline. This is very important for hedge funds whose main method is short selling. They like quick wins best of all.

A big order: Tiger Fund’s hedging techniques

Tiger Fund is very bearish on Hong Kong as a whole, so why did it spend huge sums of money to buy Hong Kong Telecom?

In May 1998, Tiger Management handed over a large order to Prime Securities, entrusting Prime Securities to purchase US$150 million in Hong Kong Telecom shares. Generally speaking, there are some requirements for such a large order. For example, the daily trading volume cannot exceed 15 and the price cannot be higher than 2 of the previous day's closing price, etc. Later, Ian Dallas, director of the institutional sales department, told me that this was the largest order he had ever seen and it took a week to complete. In fact, because the scale of assets under management is quite large, the order amounts placed by Tiger Fund are quite large. Usually the amount of a buy order ranges from US$100 million to US$150 million, and the amount of a short sell order ranges from US$50 million to US$75 million. Usually, if a fund manager likes the research of a certain analyst, he will place an order through the securities company where he works. This is the so-called "commission income" of the securities company. Accordingly, the research reports of securities companies are usually given free of charge. target customers. In the securities industry, analysts' compensation is tied to the popularity of their research. It is not uncommon for a star analyst to earn two to three million Hong Kong dollars a year.

It is worth noting that this is a buy order and not a sell order. Tiger Fund is very bearish on Hong Kong as a whole, so why did it spend huge sums of money to buy Hong Kong Telecom? In hindsight, the idea of ??this order was very clever: First, Tiger Management expected that the Hong Kong dollar interbank lending rate would rise sharply, which would directly benefit Hong Kong Telecom, which holds a large amount of cash; and the high interest rates would have a serious impact on banks and real estate. Although it was large, it would not have a great impact on the business of Hong Kong Telecom, which had a monopoly position at the time. Second, the purchase of monopoly public utility stocks is also a hedge against Tiger Fund's short selling of real estate stocks and bank stocks that are sensitive to interest rates and economic cycles.

I remember that the cost of Tiger Management’s purchase of Hong Kong Telecom was about HK$13. By August 1998, when many real estate, bank and other blue-chip stocks plummeted, Hong Kong Telecom was still stable at the level of HK$15.

Interlude: A meeting with the Soros Fund

The meeting lasted more than an hour, and probably more than half an hour was spent in a near quarrel. This is also what I experienced. The most explosive and unique meeting among hundreds of fund managers.

On July 24, 1998, Soros’s Quantum Fund invited me to their office in Hong Kong for a meeting.

I was greeted by Rodney Jones, managing director of Quantum Fund Global Research, and analyst Ben Desoma, whose questions came flying at me like a machine gun. Although our views on the Hong Kong market are almost identical, we have completely different views on China's macroeconomic prospects and the trend of the RMB exchange rate.

They who have just returned from an inspection tour in mainland China believe that the Chinese economy, which is facing major problems such as deflation, overcapacity, and extremely low efficiency, will collapse sooner or later, and the RMB will collapse in the near future (referring to one to three months). ) depreciated. Their argument is that the yuan is seriously overvalued compared with other Asian currencies, and the shadow price (black market price) of the yuan against the U.S. dollar has depreciated by about 8 (1 U.S. dollar to 9 yuan). My opinion is that the depreciation of the black market price of RMB in some areas does not fully reflect the official price of RMB. From the analysis of basic economic factors, there is not only no depreciation pressure on the RMB in the short to medium term, but also appreciation pressure. My main argument is that as foreign-invested enterprises play an increasing role in exports (the share exceeded 40% at that time), the unit cost of exports has been greatly reduced and competitiveness is increasing; the Real Effective Exchange Rate of the RMB implies The RMB has the potential to appreciate; China's good international balance of payments and abundant foreign exchange reserves can support the RMB exchange rate.

The meeting lasted more than an hour, and probably more than half an hour was spent in a near-quarrel. This was also the most explosive and unique meeting among the hundreds of fund managers I have experienced. .

Three-dimensional tactics of macro hedge funds

The operating sequence and techniques of macro hedge funds in the Hong Kong market are: first short-selling some stocks → then short-selling interest rate futures, Hang Seng Index futures, Options→Short Hong Kong dollar futures→Finally short sell Hong Kong stocks in large quantities

Hong Kong’s asset bubble and the inherent flaws of the pegged exchange rate system provide hedge funds with at least four major speculation opportunities: short selling Hong Kong dollar futures; short selling Hong Kong dollar interest rates Futures, short selling Hang Seng Index futures; selling Hang Seng Index options; short selling Hong Kong stocks.

Short selling Hong Kong dollar futures is the most important step. Short-selling Hong Kong dollar futures requires completing the following three steps:

——Borrow Hong Kong dollars from multinational banks at Hong Kong dollar interest rates;

——Sell and buy the borrowed Hong Kong dollars at market prices U.S. dollars;

——Lending the purchased U.S. dollars at U.S. dollar interest rates;

When the Hong Kong dollar exchange rate depreciates against the U.S. dollar, or when the spread between the Hong Kong dollar interest rate and the U.S. dollar interest rate expands, Hong Kong dollar futures short sellers can profit.

According to the equivalence theory of hedging interest rates (1 + Hong Kong dollar interest rate) = (1 + US dollar interest rate) × futures price/spot exchange rate, a fall in the forward Hong Kong dollar exchange rate will lead to a sharp rise in spot interest rates. From the perspective of empirical investigation, assume that the counterparty of the hedge fund is a British bank. When the hedge fund sells Hong Kong dollars and buys U.S. dollars in the forward market, the British bank sells U.S. dollars and buys Hong Kong dollars in the forward market. In order to hedge the risk of Hong Kong dollar futures, the British bank had to sell Hong Kong dollars in the spot market and exchange them for US dollars to hedge. This is called a "swap." In the spot market, the British bank's counterparty is the Hong Kong Monetary Authority, so the supply of Hong Kong dollars will decrease and interest rates will naturally rise. If its counterparty in the spot market is another commercial bank, the Hong Kong dollar will face depreciation pressure due to supply and demand. In order to increase the attractiveness of Hong Kong dollars, banks have to increase Hong Kong dollar deposit interest rates. Hong Kong dollar offered interest rates will also rise as a result.

Interest rate futures are closely related to Hang Seng Index futures, options and Hong Kong dividends. When interest rates tend to rise, Hong Kong stocks, which are very sensitive to interest rates, will tend to fall. Hang Seng Index futures and options also fell accordingly.

Therefore, from my understanding, the operating sequence and methods of macro hedge funds in the Hong Kong market are:

First short-sell some stocks → then short-sell interest rate futures and Hang Seng Index futures , options → then short selling Hong Kong dollar futures → and finally short selling Hong Kong stocks in large quantities.

When the entire market is still in a "crazy" optimistic state, gradually short selling some extremely overbought stocks is a relatively safe and concealed strategy. As far as I know, many macro hedge funds shorted many red-chip state-owned enterprise stocks and real estate stocks when the Hang Seng Index was between 15,000 and 16,000 points, and then gradually shorted interest rate futures and Hang Seng Index futures