One U.S. hedge fund manager, Kyle Bass, said recently that it would be foolish if he continued to invest his assets in Hong Kong dollars because: “If the ‘Extradition Bill’ is passed, Hong Kong will be finished!” A senior investor in Singapore also said that fund managers are preparing to short Hong Kong dollars.
The revised draft of the extradition amendment to Hong Kong’s Fugitive Offenders Ordinance proposed by the Hong Kong Government was scheduled for consideration at the Legislative Council of Hong Kong on June 12. This bill has angered the people of Hong Kong. The Hong Kong Civil Human Rights Front launched a parade on June 9 and more than 1 million Hong Kong people took to the streets to protest.
Mr. Zhang, who has been investing in the Singapore market for 20 years, said: “This parade has aroused the concern of many people and some fund managers want to short the Hong Kong dollar.” Traders believe that if the Extradition Bill is passed, Hong Kong’s economy will definitely go downhill.
Kyle Bass, the U.S. Hedge-Fund principle and founder of hedge fund Hayman Capital, had the same prediction. In an interview with Real Vision on June 5, he said: “I had dinner with a friend last night. He just sold two properties there [Hong Kong], then moved to London, never to return. He grew up in Hong Kong and his family had been in Hong Kong for generations.”
Bass said that the Extradition Bill is a way to arrest people from Hong Kong and extradite them directly to mainland China, bypassing all judicial means. That scares Hong Kong people; not only Hong Kong people, but also the 85,000 Americans living there. “My wealthy friends are leaving. I think they have to leave. We are very worried that the bill will be passed in Hong Kong.”
Bass continued: “Remember what happened during the 1995 tequila crisis? What prompted Mexico to decline? What prompted Thailand to decline in 1997?”
The Tequila Crisis refers to the financial crisis in Mexico in which both the peso exchange rate and stock prices plunged between December 1994 and March 1995. It immediately caused panic, and foreign investors madly sold the peso and started panic-buying U.S. dollars. With the devaluation of the peso, foreign investors withdrew large amounts of funds and Mexico’s foreign exchange reserves fell sharply by nearly US$4 billion in the two days from December 20 to 21. The Mexican financial crisis shocked the world.
Kyle Bass said: “While there is something happening, the rich are the first to fear and lose confidence in the government. They will start to transfer their assets. This is what is going to happen. The rich in Hong Kong will either exchange dollars or leave. I think if both of these things happen, then Hong Kong will be finished.”
Kyle Bass published a letter to investors on April 26 this year titled “The Quiet Panic in Hong Kong.” The letter mentioned that the rapid growth of floating-rate mortgages, the spread between short-term interest rates in Hong Kong and the United States, and the growing geopolitical tensions between the United States and China put Hong Kong’s exchange rate system at risk of collapse. He described Hong Kong as currently sitting on top of one of the largest financial time bombs in history.
On May 21, Kyle Bass was again very pessimistic about the Hong Kong dollar. In his interview with Bloomberg, he said that Hayman Capital was buying large amounts of dollars and shorting Southeast Asian currencies, and the Hong Kong dollar was the key target. He was critical that Hong Kong’s property market was now the most expensive in the world and one of the most leveraged economies in the world. In addition, on the political level, the Chinese Communist Party’s active promotion of the Extradition Bill in Hong Kong will force a large number of foreign companies to move out, which will severely impact the Hong Kong economy and its exchange rate stability.
Translated by Jean Chen and edited by Helen