HKD brushes off big Bass bet against peg

Business | Staff reporter and Bloomberg 11 Jun 2020

American hedge fund manager Kyle Bass has launched a new fund that will make all-or-nothing wagers on a collapse in Hong Kong's currency peg, Bloomberg reported. But Hong Kong Monetary Authority deputy chief executive Arthur Yuen Kwok-hang, speaking to the media yesterday, said the fund is already suffering from mark-to-market losses, as the local currency has been strengthening.

The founder of Hayman Capital Management, best known for his prescient bet against subprime mortgages before the 2008 financial crisis, will use option contracts to leverage the new fund's assets by 200 times, the people said.

Bass, who wrote last month that Hong Kong has become "ground zero for the ideological clash between democracy and heavy-handed Chinese communism," told investors the fund could see a 64-fold return if the currency falls by 40 percent, according to Bloomberg. Investors stand to lose all their money if the peg remains intact after 18 months.

The HKMA has said that those shortselling Hong Kong dollar misunderstand the peg system.

In fact, the de facto central bank sold another HK$2.21 billion worth of Hong Kong dollars yesterday evening as the currency strengthened to its trading limit, the ninth time in June. The aggregate balance of the local banking system is expected to increase to HK$120.62 billion.

Yuen said the trend probably would continue at least till the end of June for initial public offering activities, while listed companies require capital for dividend payment.

Stressing that the Hong Kong dollar has not reached the weakest trading limit in the past year, Yuen said there is no serious capital outflow from the local currency. Banks' deposits in April rose HK$146.2 billion compared with last year after a 2.9 percent rise in 2019. He added that it is meaningless to analyze Hong Kong fund flow with respect to deposit rises in Singapore, as the latter can be explained by an influx of capital from different parts of the world.

Citing banks, Yuen said there have been inquiries regarding opening offshore accounts, but not many people taken action and there was no significant rise in exchanges between Hong Kong dollar to the greenback. Although being affected by the pandemic, he added Hong Kong banking asset quality is stable and healthy even compared with the United States, the United Kingdom and Singapore.

So far, more than 30,000 mortgage principal moratorium cases have been approved by banks, involving over HK$380 billion, and more than 6,300 applications involving over HK$12 billion were approved for the Special 100% Loan Guarantee scheme.

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