China can strengthen its currency gradually, HK can't. They are forced to deal with economic problems through regulatory and tax policy which limits their options a ton. A reval can cool down housing, money supply growth, inflation. Effectively tighten monetary policy to stop the bubble
Let me clarify the %. I don't think they have a 10-20% of reval in the next 30 days but in the next 1 year assuming China does not blow up. If China blows up, I make more than my cost plus a profit in my short HK stocks
I remember reading the summary last year. After going through the whole piece by Ackman, it's a fascinating piece of research, and I do agree with the conclusions. I agree with you that that 1 year would be a much better timeframe to expect than the next 30 days. Btw, Leung (whom I think was the more "likely" candidate to implement this change) won the elections today. This trade reminds me alot of the Soros pound trade, due to the great reward/risk, as long as the reval doesn't for whatever (black swan) reason result in a devaluation. It's also reminiscent of USD/JPY, which never went below 100, so was priced at quite a low vol for this possibility. When JPY started massively appreciating from 2008, alot of people made tons from this option. You have any particular sectors/rationale for HK shorts? The reason is because I'm more Asian focused, so am interested to share thoughts on this.
I'm short EWH. 50% of the ETF are finance, real estate companies. I wanted to short them specifically but I haven't found a liquid ETF in the US and I don't want to venture into stock picking in markets that aren't my main niche. Its unlikely my pick would outperform anyway
Actually, the other guy seemed a bit more of an out of the box type. CY is a tool of Beijing which, if anything, is in devaluation mode. The Soros trade was a devaluation bet, a far different ballgame than revaluation. The UK economy was getting crushed by an overvalued currency and high interest rates. Soros was betting on a quick pain threshold for politicians being hit and we all know those those levels are pretty damn low! Hong Kong, if anything, is suffering from too much prosperity. I haven't read the Ackman report in months, but haven't all the monetary regime changes by Hong Kong over the last 80 years been devaluations? I have a small short in USD/HKD. If it moves back near 7.80, I may consider shorting more.
Your "devaluation mode" refers to CNY? My understanding is that whichever way CNY moves, HKD will gradually move to using CNY as a reference for its exchange rate (which at current fx rates means an appreciation for HKD), which will make it easier for Beijing to implement with CY in full cooperation. Was referring to the Soros trade purely for its great reward/risk and the parallels of a fixed exchange rate. The tricky part of this trade is that it's the reverse of all the HF's bets on currency devaluations. I'm not very sure of many trades that bet on a large, one-off appreciation; the currency trades were usually against nations with some sort of crises which they had to devalue their currency, so it's hard to use history to find precedents. From Ackman's report, all the currency changes were actually appreciations to preserve the value of the HKD.
Would you consider using TAO, it's a purely Hong Kong property etf. However it trades only 150k - 200k usd a day and I'm not sure how easy it is to get borrow. My ideal trade would be to go long the HSCEI Index, and buy a put option on the property names (which is the hard part to implement, and also depends on how much volatility is being priced in) - in case China is out of the woods, the more data we get on this, the more the index would trend upwards. If on the other hand there's a hard landing, property stocks would go down much more than the index itself.
You made me go back and resurf the report. Page 100 shows a choppy, but mostly weaker HKD over time, with the peg in the mid-80s locking the HKD in at its weakest value of the century (though I believe it was weaker for a short period right before the peg). There's nothing wrong with shorting USD/HKD and dreaming about a seaside castle in your future, although it's at the bottom of the band at the moment, meaning there's quite a bit of downside for a highly leveraged position. Even Ackman knows the trade's a loser if China blows, which I believe it's in the midst of doing. Shorting Hong Kong is one way to hedge. Shorting AUD another. Shorting a great railroad company that finds itself far too leveraged to China - Genesee & Wyoming (GWR) - may be the best of all.
Austerity gets a bad rap among Keynesians because supposedly it just decreases GDP, increased the debt to GDP ratio and throws the country into an economic spiral. Those data are correct, what is not correct is to not acknowledge that some of the fiscal situation can improve despite those facts. Ever since Greece went into austerity its primary deficit has gone down(less negative) http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=121.GST.Q.GR.N.D1300.PDF.D0000.CU.E http://lolgreece.blogspot.com.br/2012/03/primary-deficit-off-to-good-start.html The total deficit is also improving http://www.tradingeconomics.com/greece/government-budget The projected for 2012 is 7%(Lower than 2011) Why I bring this point? Although Greece is too much into a shithole to survive without default, at some point the default spiral will not work in a certain country that people will freak out about and that will mark the bottom of the EU concerns Whether the bottom will be on Spain, Italy, France, other I'm not sure at this point. But you can bet you will not have your answer from the blogesphere, the media nor from the markets because they will be just too damn biased and panicked to know any better