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Hedge Fund Investors Are Betting That China’s Currency Will Be Devalued

Hedge fund giants like George Soros, Kyle Bass, David Tepper and Jim Dondero think a sharp Chinese yuan devaluation is coming. In fact, billions of hedge fund dollars have been moved from other assets to bet that China will be forced to devalue the yuan in order to get their economic engine on track.

Jim Dondero of Highland Capital Management said China started the devaluation when the government devalued the yuan intentionally to boost their export business.

Jim Dondero is no stranger to the hedge fund world. Dondero has been investing for more than 25 years. He has held some important positions with financial companies over the years. But in 1993, Dondero and fellow investor Mark Okada started Highland Capital Management, so they could call the shots in terms of what assets to invest in and what assets to avoid. Highland Capital Management is now one of the top hedge fund investment firms in the country with more than $15 billion in assets under management.

With offices in Seoul, New York, Singapore, Sao Paulo and New York as well as the home office in Dallas, Highland Capital can react quickly in the ever-changing hedge fund world. The yuan short-sale opportunity is just one of many opportunities Jim Dondero and his other hedge fund managers assess on a daily basis. Dondero recently invested millions of dollars in healthcare, information technology and energy stocks, but the yuan short-sale investment may have a bigger payoff than any of those other investments.

The yuan short-sale investment is not without controversy. The Chinese government has been very vocal and warned investors not to bet against the yuan. The Chinese have been known to manipulate the yuan against the dollar, and some investment experts say the Chinese will continue to control their currency during their quest to get their economy stimulated again.

The yuan has been sitting at 6.6 yuan to one U.S. Dollar, but it recently dropped to 6.9 yuan to a dollar and hedge fund investors like Dondero say it could drop another 15 percent in 2016. Dondero believes the yuan’s value will drop because the Chinese government will continue to make their exports more attractive because of their manufacturing issues. The manufacturing sector of the economy has been shrinking at an alarming rate, and Dondero thinks that trend will continue.

According to an article published by Bloomberg.com, the People’s Bank of China has been forced to spend billions in order to defend the yuan. The article also said the Chinese government is taking the short-sale assault by hedge fund investors personally, and they will do what they have to do to foil investor plans for profit. China has the reserves to do battle, but the rest of the global markets may suffer during that battle.

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