Billionaire investor and founder of Pershing Square Holdings, Ltd. PSHZF Bill Ackman has revealed he has a large notional short position against the Hong Kong dollar saying the currency’s peg to the dollar no longer makes sense.
This is a very thoughtful piece and I agree. We have a large notional short position against the Hong Kong dollar through the ownership of put options. The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks. https://t.co/efp62TuB03
— Bill Ackman (@BillAckman) November 24, 2022
“We have a large notional short position against the Hong Kong dollar through the ownership of put options. The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks,” Ackman tweeted.
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What Happened: The investor cited a Bloomberg Opinion piece by Richard Cookson, which claimed pressure is building on the Hong Kong currency. Cookson believes the economic and social costs of maintaining the currency’s peg to the dollar “was becoming untenable and may need to be abandoned.”
The Hong Kong Monetary Authority, the city’s de facto central bank, has the mandate to keep the Hong Kong dollar in a range of HK$7.75 to HK$7.85 per U.S. dollar — a band that was established in 2005 and never broken, according to the report.
Cookson pointed out that the Hong Kong dollar has traded closer to the extremely weak end of the range for the most part of the year owing to the strength of the U.S. dollar.
A huge rise in debt, declining asset prices, and gloomy outlook for Hong Kong’s economy make defending the peg so much more problematic compared to the Asian crisis of the late 1990s, Cookson argued in his piece.
Lifting The Peg: “Up until moments before a currency peg is lifted, the sovereign always asserts that they will never lift their peg. Peg defense 101,” Ackman tweeted.
Ackman also raised the question of why China needs to peg its currency and that of Hong Kong’s to the U.S. dollar if it is indeed a strong, independent sovereign.
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