A number of CEOs of major U.S. hedge funds unload their portfolios to earn on the devaluation of the Chinese currency, writes The Wall Street Journal. Investors believe that China’s economy is unlikely to avoid a “hard landing”.
MOSCOW, 1 Feb. Major players in the American industry of hedge funds sharply raise bets against the Chinese currency, writes the business newspaper The Wall Street Journal.
The newspaper notes that the founder and President of the Fund Hayman Capital Kyle bass sold the bulk of their investments in equities, commodities and bonds, to take short positions in the Chinese yuan and Hong Kong dollar. Massive bet against Asian currencies in nearly 85% of the total portfolio hedge Fund will play, if the yuan and Hong Kong dollar will depreciate in the next three years, at stake is billions of dollars, including borrowed funds. The investor believes that during this period the currency of the PRC will fall by about 40%.
In addition to bass, in the game against the yuan became an associate of George Soros Stanley Druckenmiller, successfully managed his hedge Fund Quantum, the founder of Appaloosa Management, David Tepper and owner of Greenlight Capital, David Einhorn, the WSJ adds. The Soros Foundation, speaking at the world economic forum in Davos, said that China’s economy is unlikely to avoid a “hard landing”, what fueled the hype around the investors expected a decline of the Chinese currency.
“If we talk about scales, they are much more than during the subprime crisis (2007 — approx.ed.)”, — leads the publication the words of Kyle bass.
Expectations of a weakening of the Renminbi triggered an outflow of capital of residents of the PRC and foreign investors in the Chinese economy, noted in the article. Hedge funds are betting that China’s leadership will allow the weakening of the national currency to stop the leakage of investment and promote economic growth. The game against the yuan, unlike the rates against currencies, regulated only by the market — the idea very risky, because Beijing has ample resources to counteract speculation. Earlier this year, the government players bought on the Hong Kong stock exchange as much RMB, the cost of overnight loans jumped 66%, almost cutting off sources of funding for sitting in short positions by investors.
Exploring China’s banking system, analysts Hayman Capital came to the conclusion that the volume of overdue loans, now constituting about 2% of the total, will rapidly grow, so the PRC government will need to spend trillions of dollars to recapitalize the banks, which will lead to the weakening currency. The newspaper notices that a similar scenario was implemented during the subprime crisis in the USA, when the dollar began to depreciate after the fed has started to rescue American banks.