Billionaire investor George Soros said last week that he had been betting against Asian currencies. "A hard landing is practically unavoidable," Soros commented on the Chinese economy during Davos
forum. This has triggered a public uproar in China, with some analysts warning international investors against possible massive short selling of the yuan. The Global Times has collected three pieces on this issue.
Illustration: Shen Lan/GTDavos comments are just test balloon
Following Soros' words, many are concerned whether the Asian nations would suffer from another financial crisis. The 1997-98 financial crises, starting from Thailand, have swept across the whole Southeast Asia. After targeted by international speculators, the currencies of these countries witnessed a substantial depreciation.
Is Soros targeting the yuan this time? Soros has some habits in his speculative behavior. He rarely talks about his own investment projects in public. Soros' friends have little knowledge of his speculative behavior as well. It is easy to understand Soros' cautiousness. Once these financial tycoons' investment behavior is detected, a flood of fanatical faddists will follow and invest in the same projects. This will result in dramatic fluctuations in the market. As a consequence, these tycoons will certainly fail in their speculations.
Yet, this time, cautious Soros was talking about his investment plans under the media spotlight. Is Soros changing his habits? Of course not. Soros is quite cunning by making the above comments on a public occasion. His "abnormal" behavior during the Davos forum is just a test balloon for the market.
Recently, Soros, as a representative of international short-sellers, is constantly sending out information about being bearish on global economy. This is part of his shorting plan, namely, releasing a test balloon to test the market pressure. Soros is expected to release more balloons in the near future. Currently, he may have some bets against Asian currencies, but is unlikely to have a substantial position. Investigating before investing is another speculation habit of Soros. He will first make assumptions, and then establish a small position to test the market. Soros will only make a substantial investment after his assumptions get confirmed by the market.
Soros is just attempting to implement his shorting plan. During the Asian financial crisis in 1997, "robber baron" Soros, along with other international financial tycoons, shorted Southeast Asian currencies and stocks. He targeted the Hong Kong dollars. Yet, with support from the central government, Hong Kong authorities made effective interventions to the currency market in 1997. The international speculators failed. By making high-key comments over Asian currencies, Soros is highly likely to be waiting for opportunities for his "revenge." But it's quite difficult for him to succeed. Beijing Youth DailyShort selling efforts blocked by stability
Soros is unlikely to succeed if he intends to short sell the yuan. Short selling hinges on two factors: economic stability and foreign exchange reserves.
Soros claimed during the Davos forum that he had been betting against Asian currencies while buying US Treasuries. Soros' massive short selling against Asian currencies in 1997 eventually triggered a financial storm, inflicting heavy economic and social losses to Southeast Asian countries. Therefore, the public uproar against Soros' remarks during the Davos forum is not surprising.
It is no exaggeration to say that Soros is notorious in the Asian capital market. He is one of the most successful hedge fund investors in history. Soros gained notoriety in 1992 by short-selling sterling. Even though the Bank of England purchased approximately 3 billion pounds ($4.3 billion) to save the situation, the substantial depreciation of sterling could not be prevented. Soros and his Quantum Group of Funds made over $1 billion from this crisis.
This 86-year-old financial tycoon is still doing short selling business. The S&P 500 has decreased by 8.5 percent since Soros shorted it. He targets the stock markets of the raw material producers as well. As a result, the price of staple commodities, for instance, petrol and iron ore, has seen a substantial decrease. Soros has made gigantic amounts from speculation.
Admittedly, Soros' considerations behind his bet on Asian currencies depreciation are understandable. After the increase of the interest rate, the dollar is likely to appreciate. In addition, the emerging Asian nations are facing a number of difficulties in economic restructuring, which will reflect on the depreciation of domestic currencies. Therefore, it seems that Asian currencies are highly likely to depreciate.
To avoid being attacked by Soros, the economy must be stable enough to offer continuous foreign exchange reserves. This is tough to be realized in a short span of time. Foreign exchange reserves are playing a significant role in countering massive short selling.
The attempt to short sell China's yuan is unlikely to succeed. China is now the world's second largest economy. Its foreign exchange reserves are the largest in the world as well. Soros claimed earlier that "China can manage it [a hard landing]. It's got resources. It has greater latitude in using policies than most other countries because it has over $3 trillion of reserves and so on." China's foreign exchange reserves are one of the best weapons against Soros.
The Beijing NewsChinese economy stronger than clichés
Soros' claims of betting against Asian currencies during the Davos forum have triggered criticism from China. Recently, international speculators struck a heavy blow to the yuan and Hong Kong dollar. China's central bank is taking frequent actions to stabilize the financial market.
It is not surprising that some of China's heavyweight media outlets are running articles criticizing Soros. The articles have been regarded by many as the Chinese government's response and a warning against massive short selling.
In fact, the possible short selling of China's yuan will not succeed. First of all, Soros has no capability to accomplish such a tough task. It is true that this speculative tycoon accumulated a large sum by sniping at Southeast Asian currencies in the 1990s. Yet, Soros failed to short the Hong Kong dollar which was protected by the Chinese central government. After years of development, China is stronger. Thus, it will be a more difficult job for Soros to short China's yuan. In addition, Soros' words are clichés. "A hard landing is practically unavoidable" is just echoing the opinions of other international speculators.
Admittedly, China is now witnessing some economic difficulties. However, judging from its size, structure, reform and institutional construction, the stability of the Chinese economy should not be underestimated.
In fact, Soros is just attempting to gain more profits. Unlike ordinary investors, Soros is more influential and appealing. He may be taking advantage of the fluctuation of market sentiment to create a great opportunity for him to close out.
Soros' words may have some effects on Chinese citizens' confidence in China's economy. Citizens should be aware that China has abundant foreign exchange reserves to counter speculation.
China is facing a number of challenges to phase out excessive capacity, but the individual savings ratio is quite high. A large number of rich Chinese are fans of overseas shopping. As long as a proportion of the excessive capacity can be gradually upgraded, China's economy will develop to a higher level. Despite the current slowdown, the Chinese economy is still much stronger than that of other countries.ifeng.com