Get ready for a Panda-tantrum of about – oh, 6 or 7 I guess – on the Richter Scale: concerted opposition to Hong Kong’s National Security law from every NGO you can think of, plus G7 foreign ministers.
The venerable Jerry Cohen expands on his post of yesterday in the Diplomat. He even mentions a sort-of bright side to Beijing’s plan to station its security agents in the city…
Some sophisticated defenders of this momentous change argue that it will improve upon the existing situation, where kidnappings or violent attacks by local thugs occasionally take place in clandestine cooperation with mainland secret police.
It all sounds like good news for hedge fund boss (and arguably wacko) Kyle Bass, who is shorting the Hong Kong Dollar in no uncertain terms. It is a 200-times leveraged bet in which investors will lose everything if the peg holds – but stand to make a 64-fold gain if the currency drops 40% against the USD in the next 18 months.
There are reasons to be skeptical. The HK Monetary Authority has in the past heaped scorn (without uttering his name) on Bass’s flawed understanding of the peg, notably his confusion about the amount of reserves at the HKMA’s disposal. It also rejects his claims that banks here are headed for a crisis, pointing to one of the world’s highest capital adequacy ratios.
Hong Kong authorities also say Beijing has pledged additional support for the currency if it really proves necessary. (Of course, you might wonder why – for the first time ever, I think – they feel a need to announce such a confidence-booster.)
Reasons to think Bass can succeed in creating a self-fulfilling prophecy are pretty thin. It is no secret that some ultra-rich local families discreetly moved cash out of the HKD last year – and many ordinary middle-class folk have done the same since Beijing announced the National Security law. But this is a drop in the bucket. As it happens, the HKMA is currently more occupied with excess inflows of funds.
The National Security law might kill Hong Kong as an autonomous and free society. But it doesn’t follow that it will break the peg (heck – it doesn’t even weaken housing prices much). A more likely way for Bass to win his bet would be through a Mainland, rather than purely Hong Kong, mega-crisis.
And that – if we see the National Security push as a symptom of panic in Beijing – points to a reason for the prudent among us to move cash out of HKD.