China Tells Hedge Fund Investors To Stop Betting Against The Yuan

Okay. China is an economic monster and some people would like to see it go away. But it’s not that simple. China is the glue that is holding the global economy together. But the world is suddenly realizing that the glue may be harmful to global financial health. China is a monster, but that monster did the world a lot of good over the last ten years.

Sure, some of their products fall apart easily, but people buy and then they ask themselves why they do. Retailers around the world depend on China goods because they sell them at higher margins. And investors have been making money from Chinese investments for years as well.

But all the positives are on the verge of going away this year. Men like George Soros, Kyle Bass and Jim Dondero of Highland Capital Management have found a way to make a lot of money from China even though the country is on life support compliments of their enormous reserve fund. Dondero and other hedge fund investors are betting that the Chinese yuan is going to depreciate over the next three years. China’s not happy about their strategy, and the Red government said they will counter with a strategy of their own.

Jim Dondero is one of the founders of Highland Capital Management. Jim left his cushy investment job and partnered with Mark Okada another investment guru. The two men formed Highland Capital Management in 1993. Both men wanted to start a hedge fund firm that made risky bets on what some investors call questionable assets. Not all the assets Highland Capital’s assets were questionable. Dondero made some very solid investments in healthcare, energy companies and information technology firms.

Those three investment sectors are the Highland Capital’s core assets today, but Jim Dondero is betting a lot of money that the devaluation of the yuan will happen. In fact, hedge firms around the world are betting billions of dollars that the yuan will be worth a lot less in the future than it is now.

The yuan lost 15 percent of its value in 2015, according to a Bloomberg.com article. Bloomberg also said the yuan could drop in value by 40 percent over the next three years, but Dondero and other hedge fund managers say that won’t happen. China must let the yuan depreciate to salvage their fragmented economy, but the government will control the devaluation.

The Bloomberg.com article also points out that China will try to use every economic trick they can to stop investors from betting against them by shorting-selling the yuan. The Chinese are trying to stabilize the country, and they are not afraid to use money and power to get their economy back on track.

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