Bill Ackman, the activist investor, said his hedge fund
has built a short position on the Hong Kong dollar.
He’s betting the peg to the U.S. dollar will break. The Hong Kong Monetary Authority (HKMA) intervenes in foreign exchange markets to keep the Hong Kong dollar trading between 7.75 to 7.85 against its American counterpart.
That has been an expensive undertaking this year as the Federal Reserve’s aggressive rate hikes strengthened the U.S. currency. The HKMA has spent 15% of its reserves so far, equivalent to about $30 billion. That’s more than it had to shell out to maintain the peg in the Asian currency crisis of 1997.
Propping up the Hong Kong currency has been made more difficult by a fragile economy. Fresh outbreaks of Covid-19 in mainland China, to which Hong Kong is increasingly tied, have repeatedly led to strict lockdowns.
China recently reaffirmed its commitment to zero-Covid policies after its vaccine program proved less effective than those in Western nations, making restrictions on social interactions necessary to save lives.
“We have a large notional short position against the Hong Kong dollar through the ownership of put options,” Ackman said in a tweet. “The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks.”
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