Hedge Fund Reader : Hedge Funds may not find Yuan exciting

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August 07, 2005

Hedge Funds may not find Yuan exciting

China in playing extra safe with the yuan and preventing much speculation which may lead to destabilization of the country’s economy. As such, hedge funds are finding it difficult to make profits by betting on it. China revalued the yuan by 2.1% to becoming 8.11 yuan to a dollar on 21st July and many hedge funds which had long dollar positions against the yen lost a lot of money. Generally Asian currencies move in similar direction and are quite often used as proxies for the yuan. This is done because; yuan can not be bought outright. In the current scenario U S and European fund managers believe that there is going to be another move on part of China and therefore have either bought Asian currencies against the dollar or have bought yuan derivatives which are generally referred to as non-deliverable forwards. But some other hedge funds are not so sure that the move is wise because they feel that China is unlikely to give an opportunity for outsiders to make money at its expense. Which ever was the market goes, divided opinions such as in this case help hedge funds to discover opportunities. Today.reuters.com reports:

“That is why a surprise 2.1 percent revaluation of the yuan to 8.11 per dollar on July 21 caught out many hedge funds, which lost money on their long dollar positions against the yen.”

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August 7, 2005 in Emerging Markets | Permalink