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Follow Bill Ackman and Buy the Hong Kong Dollar

October 14, 2012 | About:
Bill Ackman of Pershing Square Capital Management has been betting on a rise on the Hong Kong dollar. Thus far, his bet hasn't paid off but there my be some catalysts on the horizon.

First of all, it must be understood that the Hong Kong dollar has been pegged to the U.S. dollar for the last 27 years. Monetary policy is dictated by Ben Bernanke in Washington. As Bernanke pledge QE infinity, surely the Hong Kong monetary authorities are debating the peg.

Hong Kong is one of the world's strongest economies. The country is growing at 6 percent annually and the unemployment rate is only 3 percent. However, Hong Kong has a weak currency that is equipped for an emerging market economy. However, the Hong Kong dollar is stuck at 12.9 cents.

What would happen if the Hong Kong dollar were allowed to float freely? Most likely, the currency would rise by 25 perccent in short order.

Ackman has taken a leveraged position by using over-the-counter, out-of-the-money call options that do not trade on any exchange. These options are similar to what investment banks created for John Paulson to bet against sub-prime debt.

The potential catalysts for the Hong Kong dollar could be any move by China to float the Yuan. China has let the band expand over the last few weeks in response to the Fed's QE plans. However, senior officials at the People’s Bank of China always maintain that they do not have any plans to float the Yuan in the next three years.

There is no ETF that retail investors can use to buy the Hong Kong dollar. Subsequently, investors will have to buy HKD for cash or buy the currency through the futures exchange.

Rating: 3.0/5 (10 votes)


Vgm - 3 years ago
It will be interesting to see (from the sidelines) how this evolves. But seems to me betting on a macro development like this is a fool's game, or at least involving high risk which is not commensurate with the potential upside.

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