The Big Short 2: Hedge Funds Bet Billions On China's Fall

Betting against China, specifically, the country’s currency the yuan seems to be the next ‘Big Short’ for hedge funds. This is something we predicted recently calling it the new short yen or long Apple hot trade for hedge funds.

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The next ‘Big Short’

Emerging Sovereign Group’s Nexus strategy fund is leading the charge. The $500 million fund, which is managed by Brian McCarthy, is devoted to a bet that China will fall off the rails this year. In particular, Nexus is betting against the Chinese yuan. At the end of last year, McCarthy predicted that China would allow the yuan’s drop against the dollar to accelerate after the International Monetary Fund designated the yuan a global reserve currency. And as it turns out his big short bet was spot on. According to Bloomberg, ESG’s Nexus strategy gained 16.5% in December.

ESG’s Nexus strategy is just one of the funds that’s betting against China. One of China’s most vocal bears is Crispin Odey, founder of the $12 billion Odey Asset Management. Back in October Odey wrote in his monthly letter to investors that:

“For me that something is China. China’s problems are going global. The authorities will not be able to solve their four bubbles – in housing, the bank lending market, the stock market and their own currency – with current policies. This is a $29 trillion problem area and current policies can only exacerbate overproduction and further price falls in anything connected with Chinese output. Ultimately the currency will have to fall and by at least 30%.”

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