(Bloomberg) -- Kyle Bass, the hedge fund manager who’s been shorting Hong Kong’s currency, said the former British colony faces a banking crisis in 2020, mirroring the struggles of Iceland and Ireland a decade ago.
“It takes about a year for a full-fledged banking crisis to hit, and you’ll see a full-fledged banking crisis in Hong Kong now,” Bass, founder of Hayman Capital, said on Bloomberg TV.
The Dallas-based money manager pointed to an economy mired in recession, a high ratio of banking assets to gross domestic product and collapsing retail sales amid political unrest. Hayman hedged for this situation by betting on the U.S. dollar against the Hong Kong dollar, Bass said. His firm isn’t making bearish bets on local stocks because he’s concerned that officials in China and Hong Kong will prevent short-selling of equities.
Investors including Bass increasingly focused on Hong Kong last year as an extradition bill stoked tension over the pursuit of democracy and relationship with China. Beijing’s new liaison to the city, Luo Huining, recently said he’s “fully confident” that the unrest will stabilize, while the de facto central bank doubled down on its confidence in Hong Kong’s currency peg to the dollar and the strength of the banking sector.
Skeptics of the doomsday thesis say Hong Kong has both the ability and willingness to defend the peg, which its currency board has called the “cornerstone” of the city’s financial system. George Soros tried and failed to break its peg to the U.S. currency during the Asian financial crisis in 1998, while Crispin Odey bet against the Hong Kong dollar for more than two years before giving up in mid-2018.
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