Will Hong Kong Break the US Dollar Peg?
China has said this was normal, due to tariffs and fundamental reasons, while President Trump and the US Treasury think it is an act of currency manipulation.
I have spoken about the US and China trade war on my blog. China is in it for the long game. They will be patient for a weaker US President from the Democrat side. They know the US stock markets are President Trump’s Achilles Heel. He needs them up to win re-election (‘Keeping America Great”). If markets continue to tumble it will be President Trump who is forced to the trade table to take a China dictated deal. China does not need to worry about elections.
So as the Yuan devalues, Chinese money is running into Gold and Bitcoin as mentioned in my previous posts. All governments are devaluing their currencies. New Zealand just cut rates 50 basis points yesterday!
Mainland China has been coming down hard on Hong Kong, attempting to get rid of the British Law. This is a way to stop money leaving from China (generally money from mainland goes to Hong Kong and then from there to Australia or Canada etc) and was also a way for China to get away from tariffs by shipping from Hong Kong (not under tariffs).
Hong Kong is in trouble. It is the most expensive city in the world with a large real estate bubble and there are some credit and debt problems there now.
If you listen to Kyle Bass, he has said that Hong Kong has used 80% of their US Dollar reserves to maintain the peg under 7.85. Will this peg be broken? Many think so. They are running out of US Dollars and not in the best position to buy more Dollars.
If the Chinese army does march into Hong Kong, which is probable, expect the HKD peg to break. Probably will peg to the Yuan. As Kyle Bass has said, shorting Hong Kong is the best play right now. Many hedge fund managers have spoken on this as well. Shorting the Hang Seng and the Hong Kong Dollar are ways to play this trade.
Why will China march into Hong Kong? If the people are up in arms due to Yuan devaluation, and the Chinese Communist Party feels threatened, they will go to war. The CCP will not give up control over China. War is the best way to unify the people and also blame others for domestic problems. When all else fails, they take you to war.
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