Kyle Bass Exits Yuan Short Bet Just as Trade War Really Heats Up

(Bloomberg) -- Longtime China-bear Kyle Bass has closed his nearly four-year wager against the offshore yuan just as the trade war between the U.S. and China is intensifying.

Bass’s Hayman Capital Management entered its short bet on the yuan in July 2015. The firm had the position on as recently as March, when Bass argued that China would eventually deplete its $3.1 trillion foreign-exchange reserves trying to support its currency as tensions with the U.S. escalate.

“I don’t have a vested interest in China’s currency anymore,” the Dallas-based hedge fund manager told Bloomberg Television in an interview Tuesday. “I think this is such an important moment in time for U.S. national security that all the work that I’ve done over the last seven years is moving more into the political sphere than the financial sphere.”

In a follow-up interview Tuesday, Bass declined to elaborate on when he closed the position.

Yuan Slump

The offshore yuan has slumped about 10% against the dollar in the years since Bass entered the short wager, even after accounting for a 2017 rally of about 7%. Bass said in March that he saw China heading for a painful period of deleveraging after a decade of rapid credit expansion. That process should end with the yuan 30% weaker, he said at the time, echoing a call he’s been making since at least 2016.

The Chinese currency has lost about 2.5% this month as the world’s two largest economies trade tit-for-tat tariffs. The U.S. Trade Representative’s office on Monday released a list of $300 billion of Chinese products to be slapped with levies even as U.S. President Donald Trump said he’ll meet Chinese leader Xi Jinping at next month’s Group-of-20 summit.

Bass and former Trump adviser Stephen Bannon last month called on Trump to walk away from trade talks with Beijing to achieve better terms later. They were among speakers at a conference in Manhattan.

“China is in a really bad place today, running out of dollars flowing in their economy” and on “the biggest credit binge in world history,” Bass said at the time.

Closing Out

Other hedge fund managers have also closed out bearish yuan positions in recent years. Mark Hart abandoned a yuan short in 2017 after betting on the currency’s decline since 2009.

Bass rose to prominence by successfully betting against mortgages during the financial crisis. But not all of his calls in the years since have been as prescient. He predicted a collapse in Japan’s government-bond market -- a stance he said he began sharing publicly in 2010 -- but yields there proceeded to fall below zero. Bass said in a phone interview Tuesday that Hayman’s Japan-focused fund closed in 2015 with positive returns.

Hayman still has positions in Southeast Asian currencies, Bass told Bloomberg Television Tuesday. The Wall Street Journal reported last month that the firm said in an investor letter that Hong Kong’s currency peg is under threat.

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