* Financier created huge all-or-nothing wager
* Now fund faces total write-off
* Second China currency disaster for Texas moneyman
HONG KONG’S GATHERING recovery means disaster is looming for investor Kyle Bass’s local currency fund. The Texas financier bet huge sums on the collapse of Hong Kong—and his largest wager looks set to go spectacularly sour.
In May 2019, Bass became convinced that the city was about to undergo economic collapse—the publicly stated aim of the city’s “free Hong Kong” political lobby. He urged: “Investors who have assets there should immediately move them into USD before it’s too late.”
Very few people in Hong Kong listened to him.
But his contacts overseas did. In June 2020, the China-hating Bass, who has offices in Dallas and San Francisco, created a special fund which took an all-or-nothing bet on the death of the peg between the Hong Kong dollar and the US dollar.
It used option contracts to leverage its assets by 200 times. That meant that if the peg broke within 18 months, as it would during an economic collapse, investors would get a massive windfall – every US$1 million invested would become US$200 million. However, if it didn’t, investors would lose all their money, Bloomberg reported at the time.
Now time is running out.
There’s just three months left till the end of the bet.
Inconveniently, Hong Kong has not collapsed. All indicators are up. While the city still has its challenges thanks to the Covid-led loss of the tourism industry, the markets are thriving, the restaurants are packed, and the economy is in an upswing. Unemployment and crime have fallen dramatically, outward emigration is stalling—and the currency peg has never been stronger.
What went wrong for the right-wing Texas moneyman and his gamblers?
In summer last year, Bass said he expected a “full-fledged banking crisis” in Hong Kong by the end of 2020, causing economic chaos.
By happy coincidence, Hong Kong’s independence campaigners publicized plans to paralyze the economy and call for international sanctions against the coastal city in southern China.
Bass spent months sending out social media posts predicting the collapse of Hong Kong, and highlighting claims by foreign correspondents making similar predictions about the imminent death of the city.
Frustratingly for Bass and media doomsters, 15 months out of the 18-month period has passed, and the city’s currency peg has been so strong that on several occasions, the city had to sell currency to dampen it down.
ECHOES OF THE PAST
Bass made an earlier anti-China bet which turned out badly, “shorting” (taking large bets against) the Chinese yuan from July 2015.
He worked hard to make his prediction of doom come true. Investigative journalists from ProPublica revealed that Bass was a friend of Tommy Hicks Jr., a close friend of Donald Trump Jr, and used the connections to denounce China at the US Treasury Department. But the predicted collapse of the yuan never happened, and Bass’s company, Hayman Capital, had one of its worst years in 2017.
MUST HAVE BEEN SLEEPING
Finance-watcher John Marchant told Friday media that the bet against Hong Kong was set to be another disaster for the Texas group. “Fully fledged banking crisis by the end of 2020?” Marchant said. “I must have been sleeping and missed that one.”
Meanwhile, Bass even today still has his May 2019 announcement pinned to the top of his Twitter page, warning about the death of Hong Kong. “Investors who have assets there should immediately move them into USD before it’s too late,” it says.
“True, it is getting too late,” said a financier based in ICC, Kowloon. “But not for Hong Kong. For people who bet against Hong Kong.”
Links: Check out other Hong Kong news stories on Fridayeveryday
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