A number of the world largest hedge funds have led bets against the Chinese yuan with an expectation that there will be devaluation on the currency within the next couple of weeks.
According to Business Insider, the motion in the yuan truly got the market's concern back in August 2015 when China took the largest movement in a decade by devaluating its currency. Kyle Bass, Stanley Druckenmiller, David Tepper, and David Einhorn have set themselves for the yuan's sharp devaluations. However, it is a complex business.
As the dollars increased drastically, the yuan that is pegged against US dollar had managed stronger positions. China also maintained the same target peg. The yuan value has kept on falling since that August break yet is still likely far overrated against what a market-set would be. That is approximately the purpose of these hedge funds.
Strategists at Bank of America believe the yuan could be made into 6.9 against the US dollar at the end of the year. It is now still around 6.6. However, the People's Bank of China has openly declared that it will defend the yuan, and maintain the currency stable against US dollar. Therefore, the PBoC has been compelled to use up billions of dollars to defend its peg by accumulating yuan. Subsequently, there is a major reduce on the PBoC's foreign exchange reserve.
Kyle Bass' Hayman Capital Management is reported to a lot of its positions so it could concentrate on putting down bearish bets on currencies in Asia, including the yuan and the Hong Kong dollar, as stated in CNBC. It can be seen from the 85 percent bets, which are focused on bets with high dividends when the yuan and HK dollar drop during the next three years. Bass thinks that the China's currency could dive by as much as 40 percent.
David Einhorn's Greenlight Capital also chooses the yuan devaluing. The hedge-fund manager, David Tepper, and the billionaire investors, Stanley Druckenmiller, have set short positions against the currency.
After the agreement from the International Monetary Fund to "recognize it as a reserve unit", the yuan received major international support. However, the hedge fund arrangement shows doubts on the currency prospect in near-term from investors, or China's efforts to deal with its sluggish economy.
Mentioned in Bloomberg, Mitul Kotecha, head of Asian foreign-exchange and interest-rate strategy at Barclays Plc in Singapore, said, "This shows options traders are paying less heed to the controls the Chinese authorities have implemented and that they think the yuan still has a long way to go in terms of depreciation."
It seems that whatever attempts China is making now to improve its slowdown, people are still not confident with its currency. Even the largest hedge funds choose to start positioning their bets against the yuan, believing that the currency will still be devaluating.
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