China’s Actions to Deter Speculation on the Yuan have Made Minimal Gains

Efforts by China to constrict bets against the Yuan have not been successful. However, the bets highlight the disadvantages of China’s move to support the economy by flooding domestic banks with cash while starving offshore markets. According to Chris Morrison of Omni Partners hedge fund, the surest way of deterring speculators is to allow onshore rates to rise in a rapid manner. However, he adds that it is unlikely for it will depress the Chinese economy more. In his view, the funds will flow offshore. This situation will facilitate the borrowing and selling of the Yuan unless draconian capital controls are imposed by China.

In early January, Hong Kong’s Yuan borrowing increased to all time records across all tenors as China’s central bank bought the Yuan after it hit the lowest point in five years. Hong Kong is the largest center for offshore financing of the Yuan. The move by China’s central bank depleted supplies in the market in addition to making it more expensive to borrow particularly for short trades. The action taken by China may have acted as a warning to short sellers and this could discourage future bets. In its overseas edition, The People’s Daily wrote that George Soros war against China would not succeed. Chinese officials have said that they will keep the exchange rates stable in a bid to allay fears of the weakening Yuan. They added that wagers against the currency will fail and warned speculators including George Soros of their pessimistic views about the Yuan. This information was mentioned on Bloomberg
Short trades involve selling on loan assets in the currency with a goal of making profits when buying them back later at lower prices. This strategy is commonly practiced by leading investors and investment firms like Highland Capital Management. It is an alternative investment management company based in Dallas, Texas. James Dondero created the investment firm in 1993. Highland Capital Management invests in fixed income, global public equity and hedging markets. The company has opened offices in different parts of the globe including New York, Seoul, Singapore and Sao Paulo.
Jim Dondero has been engaged in the equity and credit markets for over 30 years. His focus has been on distressed and high yield investing. Dondero pioneered the collateralized loan obligation market. Through his leadership, Highland Capital Management has an asset base that is worth more than $18.7 billion.
Funds managed by Jim have won many awards due to their excellent performance in the market. Presently, Jim manages Highland Capital Management’s operations and investment strategies for retail and institutional clients. He is a certified management accountant. Jim is also a highly qualified and chartered financial analyst. Over the years, Jim has worked for different organizations including Protective Life and American Express. His expansive expertise has seen him sit in the board of directors of American Banknote and MGM Studios.

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