China Working Hard to Stabilize Yuan Against Basket, PBOC Says – Bloomberg July 23, 2016 — 9:21 PM PDT


China expanded efforts to steady the currency markets, with the central bank adding verbal support to the exchange rate after a week that saw it slip past a key level against the dollar.Screen Shot 2016-07-24 at Jul 24, 2016 3.55

The People’s Bank of China will work hard to keep the yuan stable against a basket of currencies, Deputy Governor Chen Yulu said at a conference in Beijing on Sunday, adding that the authority will improve the policy framework for the yuan’s offshore market and cross-border services.

Chen’s comments come after the PBOC fueled speculation that it was defending a level of 6.7 per dollar by strengthening its daily reference rate even as a gauge of the greenback rose. This spurred speculation that the central bank isn’t sticking to its stated policy of following the direction of the market, which would have resulted in weaker fixings.

The signs of intervention come amid increasing pressure on the currency, with Goldman Sachs Group Inc. saying that the yuan’s declines affected sentiment and resulted in a significant pickup in outflows in June. The threat of capital flight unsettling financial markets is complicating China’s strategy of steadily weakening the yuan to combat a drop in exports as it looks to support growth in the world’s second-largest economy.

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Currency War: U.S. Hedge Funds Mount New Attacks on China’s Yuan – By Juliet Chung and  Carolyn Cui Jan. 31, 2016 5:30 a.m. ET


Bets against the yuan by hedge funds come at a time of enormous sensitivity for Chinese leaders.

Kyle Bass, of Hayman Capital Management, at the Skybridge Alternatives Conference last May. He believes the yuan could fall as much as 40% over the next three years.

Kyle Bass, of Hayman Capital Management, at the Skybridge Alternatives Conference last May. He believes the yuan could fall as much as 40% over the next three years. Photo: Rick Wilking/REUTERS

Some of the biggest names in the hedge-fund industry are piling up bets against China’s currency, setting up a showdown between Wall Street and the leaders of the world’s second-largest economy.

Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar.

It is the biggest concentrated wager that the Dallas-based firm has made since its profitable bet years ago against the U.S. housing market. About 85% of Hayman Capital’s portfolio is now invested in trades that are expected to pay off if the yuan and Hong Kong dollar depreciate over the next three years—a bet with billions of dollars on the line, including borrowed money.

“When you talk about orders of magnitude, this is much larger than the subprime crisis,” said Mr. Bass, who believes the yuan could fall as much as 40% in that period.

Billionaire trader Stanley Druckenmiller and hedge-fund manager David Tepper have staked out positions of their own against the currency, also known as the renminbi, according to people familiar with the matter.  David Einhorn’s Greenlight Capital Inc. holds options on the yuan depreciating.

The funds’ bets come at a time of enormous sensitivity for China’s leaders. The government is struggling on multiple fronts to manage a soft landing for the economy, deal with a heavily indebted banking system and navigate the transition to consumer-led growth.

Expectations for a weaker yuan have led to an exodus of capital by Chinese residents and foreign investors. Though it still boasts the largest holding of foreign reserves at $3.3 trillion, China has experienced huge outflows in recent months. Hedge funds are gambling that China will let its currency weaken further in a bid to halt a flood of money leaving the country and jump-start economic growth.

The effort is a lot riskier, though, than taking on a currency whose value is set by the market. China’s state-run economy gives the government a number of levers to pull and tremendous resources at its disposal. Earlier this year, state institutions bought up so much yuan in the Hong Kong market where foreigners place most of their bets that overnight borrowing costs shot up to 66%, making it difficult to finance short positions and sending the yuan up sharply.

The situation grew more tense after billionaire investor George Soros predicted at the World Economic Forum gathering in Davos, Switzerland, recently that “a hard landing is practically unavoidable” for China’s economy. He said he is betting against commodity-producing countries and Asian currencies as a result.

George Soros, of Soros Fund Management, at the World Economic Forum in Davos, Switzerland, recently. He said he is betting against Asian currencies.

George Soros, of Soros Fund Management, at the World Economic Forum in Davos, Switzerland, recently. He said he is betting against Asian currencies. Photo: Bloomberg News

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