A Hedge Fund Bets on Yuan’s Decline


One fund, Hayman Capital Management, is making some large bets. And it is run by Kyle Bass, a recognized investment manager who is credited with correctly predicting the financial crisis in 2008. His hedge fund hasn’t been performing that well recently, and now Bass bets on a major decline in China.


Hayman Capital Management has sold part of its holdings in various equities, bonds, and commodities. This money is now going into leveraged bets against Chinese currency as well as Hong Kong dollar. In fact, 85% of fund’s portfolio is invested into these bets. It’s a quite risky play, but if these bets pay off, the gains can be huge.


Bass believes that Chinese yuan can fall as much as 40% over the next few years. According to him, China is currently facing a huge macroeconomic imbalance. A multi-trillion corporate bond market in the Middle Kingdom is freezing, he claims.


So far this year, several issuers have defaulted on their debts, while multiple new debt issues have been suspended or canceled. However, he doesn’t think there will be a massive collapse like that of 2008 in the United States.


Bass believes that Chinese authorities will recapitalize their banks, expand Bank of China’s balance sheet just like the Fed did, and cut reserve requirements as well as drop deposit rates to zero. This should prevent Armageddon, but still is likely to lead to yuan’s depreciation.


Kyle Bass is a controversial figure. In the past, he made headlines with his comments and bets. One of these involved shorting stocks of drug companies and then suing them over patents.