Eclectica’s Hendry says China will avoid yuan devaluation

(From Bloomberg)

Hugh Hendry, the hedge fund manager known for his bearish bank bets during the financial crisis, said he disagrees with peers including Kyle Bass who say China will suffer a crisis and major devaluation.

Hugh Hendry
Hugh Hendry

Eclectica Asset Management is betting China’s offshore interest rates will rise as policy makers seek to spur demand for the yuan and discourage investors from shorting the currency, Hendry said Wednesday at the Absolute Return Symposium in New York. The wager, executed by entering a payer position via offshore rate swaps, has “immense profit appeal,” he said.

While Hayman Capital Management’s Bass — who also profited from the crisis — said last week that China faces a devaluation in excess of 30 percent and a potential banking crisis that would trump that of the U.S., Hendry says policy makers in the world’s second-biggest economy wouldn’t risk such a drop because of the impact on consumption.

“It would be profoundly silly,” he said. “Our lives, every member of this room’s life would change dramatically,” he added. “Chinese people are becoming wealthier and they’re spending. To have a 20 percent devaluation strikes at the heart of that policy.” Read more

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