The Chinese government’s efforts to support its economy by ensuring an influx of cash in local banks at the expense of offshore markets have not been successful enough. In Hong Kong for instance, bets against the currency dropped to their initial position at the beginning of the year. The rate for a three month loans offered by InterBank’s Hong Kong branch for instance dropped to 4.87% last week which is 59 points lower than it was in December 31. It also fell from a 10.42 percent record in January. In Shanghai the rate is 3.10 percent.
According to Chris Morrison of the Omni Partners, there will be an offshore flow of funds, which will enable the Yuan to be traded, unless the Chinese government imposes capital control measures. Morrison predicts that the Yuan may fall by 15 percent since it will not be easy for the government to drive a wedge between the interest rate off and onshore. Morrison suggests letting the onshore interest rates rise, but then again points out the government would not let this be since the economy would be further depressed.
The Yuan Hibor, which was introduced in 2013 as a benchmark for pricing loans in a foreign currency, rose overnight to a new high of 66.8% in January. It is from a 1.43 percent to a 6.3 percent rise that the 3 month rate rose before the new year holiday. The action by The People’s Bank of China is being compared to a military maneuver which hurt the speculators betting against the Yuan. Elsewhere, in the People’s Daily, a commentary pronounced that billionaire George Soros’s war on China would fail.
Morrison says that the lack of sync between the domestic macroeconomic stratagem and the foreign-exchange stratagem is the cause of the problem. This credibility issue is what is causing market players to continue betting against the Yuan according to Morrison. More and more Chinese savers are opting to save their money abroad fearing the steady decline of the Yuan.
Jim is the President
of Highland Capital Management, a company he started with Mark Okada. He went to the University of Virginia where he studied accounting. Jim is a Chartered Financial Analyst and is a recognized management accountant CMA.
Dondero has sat in many boards including: Safety-Kleen, Cornerstone Healthcare Group Holding, HCM Acquisition Company among others. Jim has also been Highland Financial Partners’ chairperson. He continues to serve as a board member of American Banknote Corporation.
Dondero and Mark Okada started Highland Capital under the name Ranger Asset Management. With a change in name came successes like acquisition of many floating funds. In 2008 the company opened an office in Singapore which was followed by another one in Seoul in 2011.
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This article recapped http://www.bloomberg.com/news/articles/2016-01-31/pboc-effort-to-squeeze-bets-against-yuan-undermined-by-stimulus