Recall that back in 2011, Ackman had presented a long Hong Kong dollar trade idea. Today ,the headline Hong Kong Buys $603 Million at HKD7.75 to the Dollar in First Peg Intervention Since 2009 (Source: Bloomberg) may be a prelude to the possibility of the readjustment of the peg.
Bloomberg wrote that Joseph Yam, the former Hong Kong monetary chief who helped introduce the peg and defended it against speculators during the Asian financial crisis, said in June the city should review its currency policy. Hong Kong’s officials have reiterated many times there are no plans to adjust the peg.
Hong Kong Monetary Authority stated: “The recent increase in demand for the local currency is related to a less strained European market, weakness in the U.S. dollar and declining U.S. interest rates, which have prompted capital inflows into currency and equity markets in the region.”
With so much fiat money sloshing around the world, it has to find safe refuge, and reputable Asian currencies have been prime beneficiaries.
For Ackman’s detailed presentation, watch the video below:
Ackman opined that there are four principal revaluation alternatives: 1) Allow the HKD to float 2) re-peg the HKD to trade-weighted basket 3) re-peg the HKD to RMB 4) keep the U.S. dollar peg but revalue to an appropriate exchange rate.
He believes that a revaluation from around $7.80 ($7.75 to 7.85 band) to 6:1 (i.e. a 30% revaluation) is possible. Perhaps Ackman’s trade may take a while to pan out. But he was right that HKMA will announce its decision on the weekend.
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