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Several big name investors are now placing bets on the yuan, predicting that the value of the currency will fall, rather than rise, according to WSJ.com.The bearish bet on the currency is based on the belief that China has too much debt, its economy may end up collapsing under that debt, and the government would then be forced to weaken the currency to stimulate domestic growth (weaker currency, stronger exports).
Some of the names associated with the trade, according to WSJ.com:
- Cullen Thompson, Bienville Capital
- Mark Hart, Corriente Advisors
- Christopher Pavese, Broyhill Asset Management
- Goldman recently told hedge funds to exit their yuan bullish positions
The expectation has long been that, because attempts to control inflation in China through raising reserve requirements and adjusting the interest rate haven’t been that successful, the country’s leadership would decide to increase the value of the yuan to make imports cheaper.
But if there is a China slowdown, the government may be forced to do just the opposite. It now appears major players are positioning themselves behind that currency bet.
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