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Bill Ackman has just initiated a short position on the Hong Kong dollar
Billionaire says ‘peg no longer makes sense’ and ‘only a matter of time’ before it breaks.
Source: TheStreet
Source: Bloomberg
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What's meant by a "notional short position" (which Ackman is quoted as calling it in this article)
@tomato Basically, it's valuing the underlying asset in a derivates trade. Investopedia offers a good explanation.
@kostofff Thanks for this! What's the benefit of using derivative instruments to short currency rather than just shorting currency itself?
@tomato Leverage, lower execution costs and time are the primary benefits.
Have you had any experience with shorting securities?
@joeyhirendernath Not my forte. However, some long-term investors has this in their playbook in their portfolios (balancing the long positions). It's a way to hedge and to add alpha. You need to know your game though!
I live in Hong Kong and I think the peg makes sense. HK’s main function from China’s point of view is as a financial link to the rest of the world. The peg helps with this and meanwhile wages and prices are very flexible in Hong Kong (the former freest economy in the world), which means that these adjust to compensate for the currency not being able to. The only way the peg will break is if China decides to peg to the RMB (or simply replace the HKD with the RMB) instead.
@prinzmyschkin Correct. At the end of the day it will be probably a political decision if such thing happen. This trade hasn't been a successful one for quite a long time for Kyle Bass. Also, George Soros dipped his toes in the past but I don't think it was a positive outcome.
@kostofff yes, the monetary authority still has enormous reserves, and even if it ran out, everything in HK is really about what mainland China want and they could backstop the peg if they were so inclined. Shorting the HK peg is like longing Chinese stocks, it involves using economic/business analysis to make a determination about something that is largely political.
@prinzmyschkin True.
@prinzmyschkin Good analysis on the Hong Kong Monetary Authority Exchange Fund:
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