There is a new game on Wall Street: cripple the Chinese Yuan.
On the other side, China is threatening anyone who plays a role. In fact, it’s sitting on $3 trillion in foreign-exchange reserves, which it can use to buy its own currency to punish short sellers.
But the hedge funds leading this offensive could give a damn.
One such player is Brian Kelly, founder of hedge fund Brian Kelly Capital.
He told Business Insider, “Nobody cares because the bets have been placed in the derivatives markets and have been locked in for a while — which means any hedging has already taken place and there is not much the PBoC can do. They can threaten capital controls, but they already have them and they are not working and are unlikely to work even if tightened.
“I am short RMB via derivatives and I am in the camp that a 25%+ devaluation is likely in the next 12-ish months.”
Barclays predicts that China will later this week reveal the largest single-month drop in its reserves in modern history.
Such a blow would come as China struggles with slow economic growth, a troubled a corporate sector in need of restructuring, and an industrial sector hampered by overcapacity.
Still, some investors such as Janus Capital’s Bill Gross are advising against the Wall Street offensive.
Gross warned Wednesday on Twitter, “Hedgees are trying to break the Bank of England … uh, I mean the Bank of China. It’s 2016, not 1992.”