Hedge Funds Are Too Greedy To Bet On The Depreciation Of The Renminbi.

How to deal with the renminbi short position surviving quickly became Zhao Cheng's new worry soon. Offshore renminbi has staged a roller coaster market, which rose sharply to the highest level of 6.7879 in the morning, and suddenly fell rapidly to 6.86 front-line. The closing price yesterday dropped 730 basis points, or more than 1.09%, the largest single day decline in the past year, and the increase of about two on the previous two days.

"Now I don't know where the RMB exchange rate will go in the next few days." An American hedge fund manager Zhao Cheng (a pseudonym) bluntly. Just a day ago, he just went through a storm. If it were not for the hedge fund headquarters to set up a margin and RMB position from abroad, his $20 million short selling would be forced to liquidate because of a large deficit.

This left him with a lingering fear. "Maybe we underestimated the determination of the Central Bank of China to intervene in the foreign exchange market." He admitted. But he knows clearly that the biggest driving force that really triggers the offshore renminbi market is neither the intervention of the central bank nor the so-called empty trampling. Instead, hedge funds are too greedy to bet on the devaluation of the renminbi.

Zhao Cheng said frankly that his strategy of short selling the renminbi is not complicated. Specifically, he first borrowed a 7 day RMB capital position from a bank or broker, and then converted it into dollars in the foreign exchange market. After 7 days, the US dollar rose to a certain level, and he could use the US dollar to exchange for more renminbi, most of which was used to repay Renminbi Loans, and the rest was that he sold the renminbi's profits.

"I operate almost every week." He told reporters that the reason for this strategy is mainly due to its relatively flexible operation. Once the RMB has stabilized and rebounded, he can no longer borrow in the short selling of the renminbi to avoid risks. Since last year, he relied on this short selling strategy to earn 7%-8% income for hedge funds.

Zhao Cheng explained that in fact, the depreciation rate of the RMB against the US dollar was about 3.5% during this period, but he gained higher profits by 3 times leverage investment (after deducting the cost of financing cost).

"But it also relaxed my vigilance, or became more greedy for the devaluation of the renminbi." He speaks frankly. In fact, at the end of 2016, the interest rate of RMB lending in Hongkong offshore market began to rise. In December 20, 2016, the hedge fund's US dollar speculative position dropped by 1/4.

However, he once disagreed. Because at the end of 2016, the central economic work conference put forward "to maintain the exchange rate flexibility while maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level", which made him dare to bet on the measures taken by the central bank to expand the fluctuation range of the RMB exchange rate, so as to let the exchange rate reach a reasonable equilibrium recognized by the market as soon as possible. exchange rate 。

However, as the offshore renminbi suddenly rose sharply in the evening of January 4th, Zhao Cheng's wishful thinking was completely broken. "At first, I thought several hedge funds were making profits on the RMB short end based on the pressure of the end of the year to deal with the share redemption. But when the offshore RMB exchange rate went up by 6.9, I realized that the market bearish Renminbi sentiment had reversed, and even appeared to be on the run. He recalled.

He immediately communicated with several hedge fund managers who were involved in short selling of the renminbi. He was told that the offshore liquidity of the offshore market seemed to have been drained away. We could not find the Renminbi for short positions or repayment of Renminbi loans at any time. It was in a dilemma of default and could only be bought in the two tier market to buy up the Renminbi for short positions.

This made him feel that the more serious situation is coming. As the majority of hedge funds shortens the RMB exchange rate corresponding to the offshore RMB exchange rate basically near 6.88-6.90, when the hedge fund's cost free liquidation behavior makes the offshore RMB exchange rate exceed 6.88, it is bound to trigger more large-scale stop loss selling, resulting in more intense trampling.

"At that moment, I had a hunch that my RMB short position (cost price at 6.86-6.88) was going to suffer losses, or even forced to liquidate it." Zhao Cheng bluntly said. Sure enough, just opened in January 5th, as hedge funds scrambled to find a Renminbi position to make quick stop losses for short positions, or to make short refunds directly in the NDF (non deliverable forward foreign exchange trading) market, the overnight interest rate of offshore renminbi in Hongkong rose by 2139 basis points on the same day to 38.335%, while the offshore renminbi affected 6.80 breakthroughs quickly, hitting 6.7777 of the intraday high.

"On the same day, the headquarters rushed to call for an urgent call for a speedy stop loss, but the offshore renminbi rose too fast, forcing the short position to force the closing line directly." He revealed. Because he took 3 times. lever The broker, who provides leveraged financing to him, agrees with him that if the offshore RMB exchange rate falls below the 6.82 line (that is, the net loss of the net head value is about 5%), the broker has the right to liquidate the position.

Zhao Cheng said frankly, at that time, he felt that life was hanging by a thread. On the one hand, the broker has issued a notice of margin call. If the deposit is not accounted for at 3 p.m., it will take a mandatory liquidation measure. On the other hand, he will look for friends to find his opponent's disk to make up for the short time. But on the day of January 5th, almost all the renminbi was bought in the morning.

It was not until the afternoon of 5 that the offshore renminbi went down sharply, and some of his short back checks were successfully hedged through the futures market. But at the very noon, at the noon of the day, the hedge fund headquarters urgently spanferred a Renminbi position and margin to the short delivery and maintained the existing short positions without being forced to liquidate, thus avoiding greater losses.

"Actually I was lucky, because 5 nights I heard that a large number of hedge funds lost a large margin, and they were forced to close their positions directly." Zhao Cheng sighed with emotion. At the opening of January 6th, Hongkong's offshore renminbi overnight Hibor rose 2299.8 basis points to 61.333%. Once again, it made him feel that offshore renminbi would continue to skyrocket, and decided to sell all short positions.

But what he did not expect was that after a short period of 6.7879 in the day, the offshore renminbi suddenly dropped rapidly to the 6.86 line. The closing price dropped 730 basis points yesterday, and the substantial short selling revenue slowed him down.

"It made me keep 40% of the empty position because I wanted to make the money I lost in the last two days." Zhao Cheng told reporters. The bottom line is that he heard that a number of hedge funds are selling high and short selling renminbi. The reason why they dare to sail against the current is mainly due to the pace of the Fed's hawkish interest rate raising. RMB There is still pressure of volatility to convince them that the opportunity to sell renminbi at high prices has arrived.

But their abacus quickly broke down. After the offshore RMB reached a low of 6.8623 within a day, it quickly ushered in a strong rebound, and soon recovered some land lost to 6.82. This disappointed Zhao Cheng. Because he realized that although many hedge funds had already stopped, the trampling between bears had not ended. The new short intention was going to sell the renminbi arbitrage at high prices, while the old bears were thinking of getting away from the right and wrong, which led to a sharp increase in the RMB exchange rate volatility.

"Frankly speaking, I do not know where the RMB exchange rate will go in the next few days." He speaks frankly. Fortunately, in the afternoon of January 6th, Hedge Fund headquarters again stressed the need to hedge against all the short positions in the renminbi. He was determined to hedge the 40% short positions through the futures market without worrying about the time of the great fluctuation of the offshore RMB exchange rate.

"Now I feel relaxed, but at the end of the week, I have to submit a report to headquarters to fully explain the fluctuation of offshore RMB." He sighed with emotion.

In his view, instead of the result of the intervention of the central bank in the foreign exchange market and the Short March, the offshore hedge is too greedy for the renminbi to depreciate. Before speculative capital fell to the ground that the renminbi would depreciate against the US dollar and relax its vigilance against abnormal fluctuations in the market, no one would reverse the question whether the central bank would allow speculative capital to stir up trouble.

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