A hedge fund manager who nailed subprime is betting on China devaluing the yuan 'north of 50%'

Mark HartReal Vision TelevisionMark Hart, the founder of Corriente Advisors

Texas-based hedge fund manager Mark Hart III, thinks China will further devalue its currency “north of 50%.”

Hart, the founder of Corriente Advisors, was one of the hedge fund managers who correctly predicted and profited from the sub-prime crisis.

He had a special fund for the European sovereign crisis, which also delivered bumper returns to investors.

Now he has a special situations fund specifically structured for the devaluation of the RMB.

In an interview on Real Vision Television, a subscription financial news service, Hart said he believes China has the opportunity to allow for a “very sharp devaluation” and they would be “completely justified” doing so.

Hart predicted in September 2014 that China would have to devalue its currency. In August 2015, the People’s Bank of China did just that. But Hart believes the devaluation of the yuan has barely begun. 

He said: 

One thing China could try to do is devalue and then draw a line in the sand and defend and say ‘we are going to defend right here.’ And then they would use the foreign exchange reserves to make sure it doesn’t weaken anymore. The big risk there, of course, is a sharp devaluation is going to be pretty jarring. And at least initially, it’s going to have the effect of creating more outflows.

He continued: “If China were to devalue to a level that wasn’t actually a true equilibrium level then they will get run over pretty quickly, they will blow through foreign exchange reserves, and then they will lose face because they will be forced to devalue.”

Hart said his point is that China should allow for external market forces to allow for the devaluation to happen. That way, it would be from a “position of strength.”

Hart isn’t the only one calling for devaluation, of course. The yuan depreciation has become a consensus trade amongst hedge funds, according to Bank of America Merrill Lynch’s Global Fund Manager survey.

“CNY is projected to fall to 6.71-6.90 vs USD by year-end by 37% of respondents. One-third expect it to depreciate below 6.9,” the BAML report said.

There are voices in China calling for a bigger devaluation too. Reuters reported earlier this year that insiders at The People’s Bank of China were in favour of a sharp drop in the yuan. 

Watch the Real Vision video clip here. For the full hour-long interview, subscribe to Real Vision for a free week-long trial.

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