Seven-Year China Bear Turns Bull After $240 Million Loss on RMB Shorts

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A US hedge fund manager has abandoned his bearish outlook on the Chinese economy after losing over USD$240 million betting on a currency collapse.

Mark Hart, the 45 year-old founder of Fort Worth-based hedge fund Corriente Advisors, says that China will do “whatever it takes” to keep its currency afloat, and is well-positioned to eventually achieve developed economy status.

“China now has the breathing room it needs to either temporarily stave off a slowdown with fiscal and monetary stimulus, or reform, grow and upgrade itself into the world’s largest developed economy,” said Hart to Bloomberg.

Hart is no dyed-in-the-wool Sino-bear, and his opinion marks a sharp reversal following a seven year bet on a crash in the yuan.

Since 2009 Hart has made all-or-nothing bets on a Chinese currency collapse via the purchase of options by his dedicated, fixed-lifespan China funds.

Hart has lost anywhere between USD$240 million and $250 million from then until the closure of his second China fund in December, with the yuan failing to undergo the precipitous drop needed for Hart to win big on his bets.

The losses are a rare error for Hart, whose macro hedge fund posted annualised returns of 30%from 2001 to 2006, as well as reaped massive winnings from bets in relation to the US mortgage market during the GFC, as well as the Eurozone sovereign debt crisis that followed in its wake.

According to Hart his error lay in assuming that Beijing would let the yuan slide in order to forestall capital outflows.

China’s central government has instead endeavoured to keep the currency afloat by ratcheting up capital controls, as well as spending over $800 billion of its copious war chest of foreign reserves during the past two years.

The yuan has risen nearly 7% since the start of 2017, and is now at its strongest level against the US dollar in over a year.

Hart also said to Bloomberg┬áthat the crackdown on capital outflows has served to stymie the flashy offshore acquisitions of China’s nouveau mega-rich, and expects foreign investments to be more prudent in future, focusing on the technology sector as well as Xi Jinping’s marquee One Belt One Road initiative.

“I don’t expect to see many big soccer club purchases by wealthy Chinese,” he said.

 

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