Odd that I can't find these articles from 1998 anywhere online. Interesting to see how weak Bloomberg was compared with Reuters and Dow Jones back then.
HONG KONG MARKET SOARS AS GOVERNMENT BUYS STOCK; CITY AIMS TO THWART SPECULATORS
14 August 1998
HONG KONG - The Hong Kong government bought stocks and futures today for the first time to fend off an escalating attack on the city's currency.
The unprecedented step caused an 8.5 percent surge in the benchmark Hang Seng index, the biggest rally in six months.
Two government funds made the purchases to counter speculators who sold a substantial amount of Hong Kong dollars and stocks while trying to break the currency's peg to its U.S. counterpart. The latest attack by speculators has been triggered by talk that China might devalue its currency.
Hong Kong's move broke with its long-standing tradition of not meddling in its stock and futures markets.
Observers said the government's gambit may backfire because it shows Hong Kong can no longer protect its currency, among the last in Asia still tied to the dollar, through the foreign-exchange markets alone.
Hong Kong, which has said repeatedly it will bear the economic pain of defending its currency, is headed for its first recession in more than a decade. Doubt over the stability of the Hong Kong dollar has been increasing interest rates as the economy shrinks.
Hong Kong's Government Buys Stocks In New Bid To Thwart Speculators
14 August 1998
Dow Jones Online News
NEW YORK - The Hong Kong government Friday took the unprecedented step of using foreign-exchange reserves to buy stocks and futures in addition to propping up the Hong Kong dollar as part of a complex defense against speculators who want to sever the local currency's link to the U.S. dollar.
The government - through the Hong Kong Monetary Authority - spent an undisclosed amount of its $96.5 billion in foreign-exchange reserves to buy blue-chip stocks, Hang Seng Index futures and the local currency.
The move worked, at least for now, and Hong Kong Chief Executive Tung Chee-hwa vowed to do it again. "We will do it time and time again" to thwart speculators, he said.
Overnight in Hong Kong, the blue-chip Hang Seng index soared 564.27 points, or 8.5%, to end at 7224.69, erasing Thursday's 199.06-point fall to a five-year closing low. Before Friday, the market had tumbled 16% this month.
However, analysts were quick to point out that Friday's action exposed the currency market's vulnerabilities. They said the move has provided speculators with exactly the kind of tactical information they need to try something new. "It's kind of counterproductive. It highlights their own predicament," said a currency trader in London.
"They probably don't frighten anyone," said Miron Mushkat, director of economics and strategy at Indocam Asia Asset Management Ltd., adding that emotion might be getting the better of the Hong Kong government.
Because Hong Kong's currency is tethered to the U.S. dollar under a modified version of a currency board, interest rates will rise when the Hong Kong dollar is sold. So the recent speculative attacks on the currency have triggered massive selling in the Hong Kong stock market.
Armed with the knowledge that higher rates will hurt the stock market, speculators have first sold short stock futures and then sold Hong Kong dollars. Selling short involves the sale of borrowed shares or currency. The speculators profit by buying back their stock futures at a lower price, after the currency's decline sparks a rise in interest rates and a decline in the stock market.
The government made it clear the speculative attack has been calculated and intense, but wouldn't say how big either the threat to the peg system has been or how much its defense has cost.
The speculators' ultimate goal is to push interest rates up so much that they crash Hong Kong stocks and property prices to the extent that the government delinks the Hong Kong dollar and lets if fall like other Asian currencies have done over the past year.
"This rise and fall in the Hang Seng Index is not my concern. My concern is to drive those speculators out of the market," said Hong Kong Financial Secretary Donald Tsang Yam-kuen. There is concern that Hong Kong's free-market system is at risk, by following other Asian governments down the same path of blaming outside forces for its own problems.
HK govt buys shares to foil speculators
By Andrea Ricci
14 August 1998
HONG KONG - The Hong Kong government intervened in the territory's stock market for the first time on Friday, but officials said their aim was to foil speculators, not prop up the sagging market.
"The government has no intention to artificially support the stock market. The measures we have taken today are directed against specifically speculative activities," Hong Kong Chief Executive Tung Chee-hwa told reporters at a hastily called news conference.
Earlier, a grim-looking Financial Secretary Donald Tsang announced he had asked the Hong Kong Monetary Authority (HKMA) to launch "counter activities in the stock and futures market" against speculators that had attacked the Hong Kong dollar as a means to influence stock prices.
Officals refused to disclose how much the HKMA spent buying shares and futures contracts.
Last week, overseas investment houses and hedge funds sold billions of U.S. dollars worth of Hong Kong dollars in both the spot and forward markets.
Conventional wisdom has it that speculators are not really targetting the Hong Kong dollar when they sell it.
Rather, they are trying to push up rates and cause stock prices to fall, either because they already have shorted the share market or want to buy stocks at cheaper prices.
Tsang said that was exactly what happened in the latest attack.
"This would enable them to benefit from their very substantial short positions which they have accumulated in the Hang Seng Index futures market," said Tsang.
Tsang said the government had no evidence past attacks on the Hong Kong dollar were linked to speculation in stocks.
"This is the first time we've intervened in the securities market because this is the first time we have seen a double play working against us in a critical time when regional confidence is fragile, when people wish to be reassured," he told reporters.
The Hong Kong leaders stressed repeatedly that they had not abandoned their hands-off policy in the markets, despite today's unprecedented action and the HKMA's ongoing purchases of Hong Kong dollars outside the currency board system.
"Our long-standing policy of non-intervention in the stock and futures markets remain unchanged," said Tsang.
He said the government would only contemplate intervention when it believed movements in stock and futures markets were caused by rate hikes engineered by speculators.
Under the currency board system, pressures for a weaker Hong Kong dollar automatically cause interest rates to rise and vice versa. Higher rates take a toll on asset markets and the real economy.
While most analysts say they expect the peg to stay, government actions to stabilize property prices and boost liquidity in the banking sector have raised questions about its willingness to take the pain of plummeting asset prices.
The latest massive attack on the Hong Kong dollar was foiled without a surge in interest rates because the HKMA purchased the local dollar for the government treasury, skirting the currency board system and recirculating the dollars back into the banking system.
The treasury needed the funds to fill a shortfall, but the move nevertheless was viewed by some as a convenient tactic by the government to avoid rate rises.
Analysts took a jaded view of Friday's stock market intervention.
"It won't change a thing. I think they (the speculators) will come back with a vengeance," said Steven Thompson, chief analyst at Nikko Research Center.
"They may have achieved a certain goal of burning these speculators, but at the same time they have probably damaged Hong Kong's reputation," said Thompson.
The Hang Seng Index surged 8.47 percent to 7,224.69 on Friday after hitting a five-year low on Thursday, but Hong Kong shares traded in London fell modestly after the government's announcement.