Famed hedge funder Kyle Bass is betting big against the Hong Kong dollar as the US threatens to remove a key peg
- Hedge fund veteran Kyle Bass is betting against the Hong Kong Dollar, in expectation that the US will remove a key peg against the dollar, Bloomberg reported.
- His Hayman Capital firm is making a 200 times leveraged bet against the currency, which has been pegged against the US dollar for almost 40 years.
- Investors could make a return of 6400% should the Hong Kong currency shrink 40% against the dollar, but if the peg is still in place in 18 months time, their losses could be total, Bloomberg said.
- The US is reportedly considering removing the longstanding peg as a sanction against the Chinese government's new draconian security law in the semi-autonomous region.
Famed hedge fund manager Kyle Bass is betting big that the US will remove a key peg against the Hong Kong dollar, which has been in place since 1983.
Bloomberg reported Friday that Bass' firm Hayman Capital has made a 200 times leveraged bet against the Hong Kong currency.
Investors could make a return of 6400% should the Hong Kong currency shrink 40% against the dollar, but if the peg is still in place in 18 months time, their losses could be total, Bloomberg said.
Bass has been betting that the local currency will shrink since May last year, Bloomberg reported.
Tensions between USA and China resurfaced this week after the US threatened to end Hong Kong's 37-year currency peg to the US dollar in response to China passing a draconian law that increases its grip over the semi-autonomous region.
Bloomberg reported Wednesday that the possibility to limit Hong Kong's bank to buy US dollars was escalated to Secretary of the State Mike Pompeo.
The Hong Kong currency has been pegged to the US dollar since 1983, and trades in a strict band of about 7.8 HKD per US dollar.
It has been the bedrock of Hong Kong's status as the world's sixth largest financial centre.
The Hong Kong dollar peg has in the past been the subject of other big bets by renowned investors.
Billionaire investor George Soros, another hedge funder, made a similar bet in 1998 during the height of the Asian Financial Crisis. That bet turned sour. UK-based hedge fund star Crispin Odey also bet against the peg but withdrew from the trade in 2019.
Last year mass protests took place to express dissatisfaction with the extradition bill being proposed with China. China's draconian law in May raised the specter of a similar scenes, although it has allowed authorities to more easily arrest protesters, muting protests so far.
Hong Kong's Monetary Authority sold about 13.4 billion Hong Kong dollars ($1.7 billion) this week, to prevent the currency from appreciating and to keep the peg in tact.
This brought the city's total expenditure to $13.5 billion since the start of the year to ensure its currency does not break the upper band limit of $7.75 per Hong Kong dollar.