Soros (HFs) vs PBOC

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So, hedge funds have been making speculative bets against the Yuan. After Soros released his piece last week outlining how "A hard landing is practically unavoidable", a government official responded with “Soros’ challenge against the renminbi and Hong Kong dollar is unlikely to succeed, there is no doubt about that"

Between market controls and supporting the currency, and trying to maintain a reserve currency status and balancing its forex reserves, how much can China intervene and for how long?

Sparring words is one thing - even though the Chinese government has been adept at it, but when you are facing a currency crisis how long can you hold on? All key indicators related to Housing, Shipping, and sectors like Steel, Mining and General Manufacturing point that China is slipping into recession territory. So how long can they support their sputtering economy and their currency, all the while trying to maintain an internal image of a stable currency

Would love to know the community's broader thoughts on this?

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Comments (12)

 
Best Response
Jan 27, 2016 - 5:48pm

PBoC reserves are actually very limited if you compare it to China's money supply. They won't be able to defend the currency if we see sufficient capital outflows.

The Soros HKD bet is purely anecdotal. Have you seen where HKD forwards are trading lately?

You can't call yourself a macro trader if you aren't short CNH or another proxy asset.

 
Jan 28, 2016 - 7:30pm

Macro Arbitrage,
Do you follow Mark Hart at all? That's very similar to his argument. I agree 100%.

When old Mr. Partridge kept saying, “Well, you know this is a bull market!” he really meant to say that the big money wasn’t in the individual fluctuations but in the main movements, not in reading the tape but in sizing up the entire market and its trend
 
Jan 27, 2016 - 10:53pm

Have to agree with Macro Arbitrage here on the money supply.

Even though the PBOC claims it has trillions - I mentioned above that there are certain restriction on how much they can spend to defend the Yuan and the impact this will have on their international standing

Also when I say "Soros" I mean a collective of funds and traders - Soros is just the global and vocal champion of the funds

 
Jan 27, 2016 - 11:57pm

PBOC can last a very long time. Remember that it's not a fully open economy. All they have to do is put in capital controls to stem the outflow of RMB - not helpful to aspirations of being a global trading currency, but sometimes you have to make hard choices.

 
Jan 28, 2016 - 12:17pm

Capital controls are futile. The money will find its way out. Whether it's through purchasing foreign assets and selling them for USD or back in November we saw massive outflows through Bitcoin. Jim Chanos also had a great presentation a few years ago on how CNY was being laundered out of the Macau casinos. People were paying a 30% cut right off the top just to get money out of China. That should give some indication of how big the devaluation is to come in China.

When old Mr. Partridge kept saying, “Well, you know this is a bull market!” he really meant to say that the big money wasn’t in the individual fluctuations but in the main movements, not in reading the tape but in sizing up the entire market and its trend
 
Jan 28, 2016 - 7:00pm

I hope you are being sarcastic. 7% is asinine. Their GDP data is questionable at best and outright fraudulent in all likelihood. They can't even get the trade data with Hong Kong accurate.

In the last few years, construction accounted for roughly 65% of Chinese GDP. At the top of the US housing crisis construction was only 16% of US GDP. Do you honestly think the US had positive GDP growth in 2006? (The answer is no) China will have negative GDP growth as their construction bubble turns into a nonperforming loans crisis and then a currency crisis.

When old Mr. Partridge kept saying, “Well, you know this is a bull market!” he really meant to say that the big money wasn’t in the individual fluctuations but in the main movements, not in reading the tape but in sizing up the entire market and its trend
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